MIPS Technologies was spun off from Silicon Graphics, Inc. in 1998. The company is headquartered in Mountain View, California. MIPS Technologies, Inc. develops embedded processors and related intellectual property for use in performance-oriented markets, such as digital entertainment, wired and wireless communications (including broadband access), office automation, security, and automotive markets. Its designs are based on its 32-bit and 64-bit reduced instruction set computing architectures. The company licenses its MIPS32 and MIPS64 instruction-set architectures, application-specific extensions, core designs, and other related intellectual property to semiconductor companies and system original equipment manufacturers. It also offers a variety of embedded processors that scale across multiple markets in standard, custom, semi custom, and application-specific products. MIPS Technologies' core and processor designs and related intellectual property are used in digital set-top boxes, digital televisions, DVD players, video game systems, laser printers, automotive telematics, broadband access devices, 802.11 wireless networking devices, and network routers. It has sales offices in California, Japan, Taiwan, Germany, and Israel. The company's predecessor, MIPS Computer Systems, Inc., was founded in 1984.
Chipidea will Drive Margins
In August 2007, MIPS completed the acquisition of Chipidea, a Portuguese company that supplies analog and mixed signal intellectual property for the wireless, digital consumer and connectivity markets. The purchase price for this acquisition was $147 million in cash paid at closing, with contingent obligations to issue up to 610,687 shares of common stock (or to pay the cash value of such shares) based on the performance of the Chipidea business and to pay an additional 1.2 million in cash if Chipidea receives a certain grant from the Portuguese government.
The Chipidea product line enjoys higher margins than the legacy business and had a pro-forma operating profit of $1.7 million in the second quarter.
The acquisition is not without risks. The firm may not achieve the advantages originally envisioned when it decided to complete this acquisition. For example, the development of analog and mixed signal IP is relatively more labor intensive than that of MIPS' microprocessor IP business, and we cannot be assured of our ability to achieve operating results from this business that correspond to those that we can achieve in our existing business. If we are not as successful as we anticipated with the Chipidea business, our future operating results and financial condition would be adversely affected.
Contract Revenue Has Traction
Contract revenue consists of technology license fees paid for access to its developed technology and engineering service fees related to technology under development. MIPS ability to secure the licenses from which contract revenues are derived depends on its customers, including semiconductor companies, digital consumer and business product manufacturers, adopting our technology and using it in the products they sell. Our contract revenue increased 28% in fiscal 2005, but declined 12% in fiscal 2006, and then increased by 42% in fiscal 2007.