Virage to acquire ARC

On August 18, ARC International announced that it would be acquired by Virage Logic. Virage supplies a variety of IP, such as cell libraries, memory, and interfaces—comparatively low-level technology that complements the CPUs and audio software ARC has supplied.

Virage is paying ARC's shareholders $41 million, a 38% premium over ARC's market cap. Publicly traded since 2000, ARC has never posted a profit. 2009 has been particularly tough for ARC. 1H09 revenue was down 22% compared with 1H08 (in terms of pounds sterling; in dollar terms revenue was down 39%). US-based Virage saw 1H09 revenue decline 23% in dollar terms and has occasionally posted profit or positive cash flow from operations.

In recent years, ARC had shifted its emphasis from supplying CPU IP for diverse applications to supplying audio products that combine software, codecs, and hardware. We believe that processor IP companies should increasingly focus on delivering products tailored for specific vertical markets. The audio market is highly competitive, however, and ARC had limited resources to subsist on until this strategy could bear royalties. Moreover, unlike competing audio-processor suppliers which work with well-recognized third parities for audio-postprocessing software, ARC had acquired Sonic Focus to deliver this kind of technology to customers. This vertical strategy had been led by the company's previous CEO, Carl Schlachte. He was replaced in May, and new CEO Geoff Bristow has focused on cost reduction in an effort to spruce up the company for sale as much as to cope with market conditions.

The ARC operation reportedly is readying a new CPU, the ARC 6000 optimized for low power consumption. Because Virage's IP is broadly applicable, the company may be tempted to abandon ARC's vertical-market approach and focus instead on marketing ARC CPUs as general-purpose IP to Virage's diverse customers.. This strategy will enable Virage to cut costs but would position ARC as a low-cost alternative to MIPS, PowerPC, and ARM, the strategy that kept ARC profitless for its history.

MIPS, meanwhile, is enabling customers to develop multithreaded software that avoids race conditions and devoting resources to new CPUs and software such as Android. For its part, IBM is readying a high-performance PowerPC core for its licensees. IBM will make the first public disclosure of its new core at the Linley Tech Processor Conference in September. —Joe

Joseph Byrne, senior analyst