Digi International Acquires Rabbit Semiconductor; Highly Complementary Product Lines Extend Digi's Leadership Position in Commercial Grade Device Networking
MINNETONKA, Minn.—(BUSINESS WIRE)—May 26, 2005—
Digi International(R) Inc. (Nasdaq: DGII) today
announced the acquisition of Rabbit Semiconductor, Inc., formerly
Z-World(TM), Inc., a privately held corporation and the manufacturer
of the popular Rabbit(TM) line of microprocessors and
microprocessor-based core modules and Z-World single board computers.
The acquisition is a merger transaction for $49 million of cash.
Based in Davis, California, and employing 142 people, Rabbit
generated $27.3 million in revenue and $1.4 million net income in
their fiscal year ended September 30, 2004.
Rabbit's value proposition is to provide quick-to-market solutions
for a variety of systems and devices that typically require
connections to the Internet. These solutions are used in building
security, point of sale, parking systems, telecommunications, vehicle
and ship systems, container tracking and a broad variety of similar
applications. Similar to Digi, Rabbit bundles hardware and software
together, creating an engineer-friendly development environment.
Customers include Lockheed, Boeing, McDonnell Douglas, IBM, GM, Ford,
and NASA, along with thousands of small- and medium-sized companies.
"The combination of Digi and Rabbit is very exciting because there
is such a tight strategic and cultural fit," said Joe Dunsmore,
Chairman, President and CEO of Digi. "The product lines are
complementary and the product and channel synergies will provide
tremendous growth potential for the future. Conservatively, we believe
the acquisition brings an incremental $100 million of addressable
market that we believe will roughly double in four to five years."
Norm Rogers, Founder and CEO of Z-World, said, "Digi is a perfect
match for us, as we're in adjacent segments of the same business. We
understand each other and our corporate cultures are compatible. Our
products fit together rather than butting against each other. I am
confident this will be a highly successful combination."
Complementary Product Lines
Rabbit products are primarily applied to endpoint devices and
applications such as sensors, meters, vending machines, card readers,
and scales. There are very stringent power, physical size, and
software code size constraints often associated with these kinds of
devices. By contrast, Digi products, including Digi's ConnectCore(TM)
and Digi Connect ME(TM) embedded modules and NetSilicon's Net + ARM
microprocessors, are typically used in integration point devices such
as access control systems, alarm system controllers, HVAC controllers,
industrial drives, as well as more complex endpoint devices such as
kiosks, industrial printers, RFID readers, and security cameras.
Requirements for these devices typically include higher data speeds,
larger and more complex software, and often a graphical user
interface.
"This acquisition represents one plus one equals ten," said Glen
Allmendinger, President of Harbor Research, a consulting and research
firm tracking the device networking and pervasive computing markets.
"Customers in a wide range of industries and applications will benefit
from Digi's and Rabbit's complementary skills, products and market
reach. Rabbit provides networking solutions for endpoint devices that
support many simple I/Os and sensors. Digi is the market leader in
providing networking solutions for more sophisticated devices like
industrial controllers and communications gateways. The combination of
these two competencies provides customers a partner who can supply
easy-to-integrate embedded networking solutions for both of these
needs. Combining these leaders in the embedded device networking arena
should lead to significant growth and value creation."
With the Rabbit acquisition, Digi now has the widest range of
embedded device networking solutions in the industry. Device
manufacturers can select from a menu of microprocessors, operating
systems, microprocessor-based modules and single board computers, to
best fit their application, volume, cost, and time to market
requirements.
Merger Specifics and Conference Call
Pursuant to the terms of the merger agreement, Rabbit became a
wholly owned subsidiary of Digi. The cash purchase price was used to
purchase all of the outstanding shares of Rabbit stock and to buy out
all outstanding Rabbit stock options. Rabbit's name was changed from
Z-World, Inc. in the merger. Digi will retain Rabbit's office in
Davis, California.
Digi expects Rabbit to contribute in excess of $2.0 million in
revenue for the third fiscal quarter of 2005 and in excess of $7.0
million for the fourth fiscal quarter of 2005. Digi anticipates Rabbit
to contribute revenue in excess of $31 million for fiscal year 2006.
Digi anticipates that one-time expenses associated with the
acquisition will reduce earnings per diluted share by $0.04 to $0.06
for the third fiscal quarter of 2005. Digi expects the Rabbit
acquisition to be accretive by $0.01 to $0.02 per diluted share in the
fourth fiscal quarter of 2005. For fiscal year 2006, Digi anticipates
Rabbit to be accretive by $0.03 to $0.06 per diluted share. Digi
expects Rabbit's gross margin to be in a range of 51% to 53% in fiscal
2006.
Digi will host a conference call to discuss the transaction at
4:00 p.m. Central Time on Thursday, May 26, 2005, and invites all
those interested to participate either by phone or on the Web.
Participants can access the call directly by dialing 1-800-633-8489.
International participants may access the call by dialing
212-676-4900. A replay will be available for one week following the
call by dialing 1-800-633-8284 for domestic participants or
402-977-9140 for international participants and entering access code
21248160 when prompted. Participants may also access a live webcast of
the conference call through the investor relations section of Digi's
Web site, www.digi.com.
About Digi International
Digi International, based in Minneapolis, makes device networking
easy by developing products and technologies that are cost effective
and easy to use. Digi markets its products through a global network of
distributors and resellers, systems integrators and original equipment
manufacturers (OEMs).
For more information, visit Digi's Web site at www.digi.com, or
call 877-912-3444 (U.S.) or 952-912-3444 (International).
About Rabbit
Rabbit Semiconductor, Inc., based in Davis, California, and
formerly named Z-World, offers a complete line of low-cost,
high-performance embedded control solutions, including single-board
computers, operator interfaces, and core modules for Internet/Ethernet
connectivity. In 1989, Rabbit launched Dynamic C(R), the first
integrated software development system specifically designed for
embedded single-board computers. This highly successful integration of
hardware and software substantially reduces development time and cost.
In November 1999, Rabbit launched a new fabless semiconductor
division, Rabbit Semiconductor, specializing in high-performance
microprocessors.
For additional Rabbit product information, please visit the Rabbit
Web site, www.rabbitsemiconductor.com.
Digi, Digi International, Net+ARM, ConnectCore, Connect ME, and
the Digi logo are trademarks or registered trademarks of Digi
International Inc. in the United States and other countries. Z-World,
Dynamic C and Rabbit Semiconductor are trademarks or registered
trademarks of Rabbit Semiconductor, Inc. All other brand names and
product names are trademarks or registered trademarks of their
respective owners.
Forward-looking Statements
This press release contains statements that constitute
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, which generally can be identified by
the use of forward-looking terminology such as "anticipate,"
"believe," "target," "estimate," "may," "will," "expect," "plan,"
"project," "should," or "continue" or the negative thereof or other
variations thereon or similar terminology. Such statements are based
on information available to management as of the time of such
statements and relate to, among other things, expectations of the
business environment in which the companies operate, projections of
future performance, perceived opportunities in the market and
statements regarding the combined company's mission and vision, future
financial and operating results, and benefits of the transaction. Such
statements are not guarantees of future performance and involve
certain risks, uncertainties and assumptions, including risks related
to the highly competitive market in which the companies operate, rapid
changes in technologies that may displace products sold by the
combined company, declining prices of networking products, the
combined company's reliance on distributors, delays in product
development efforts, uncertainty in consumer acceptance of the
combined company's products, and changes in the companies' level of
revenue or profitability. These forward-looking statements are neither
promises nor guarantees, but are subject to risk and uncertainties
that could cause actual results to differ materially from the
expectations set forth in the forward-looking statements, including
but not limited to uncertainties associated with economic conditions
in the marketplace, particularly in the principal industry sectors
served by the combined company, changes in customer requirements and
in the volume of sales to principal customers, the ability of the
combined company to achieve the anticipated benefits and synergies
associated with this transaction, the challenges and risks associated
with managing and operating business in numerous international
locales, competition and technological change, and the risks that the
businesses will not be integrated successfully.
These and other risks, uncertainties and assumptions identified
from time to time in Digi's filings with the Securities and Exchange
Commission, including without limitation, its annual reports on Form
10-K and quarterly reports on Form 10-Q, could cause future results to
differ materially from those expressed in any forward-looking
statements. Many of such factors are beyond Digi's ability to control
or predict. These forward-looking statements speak only as of the date
for which they are made. The companies disclaim any intent or
obligation to update publicly any forward-looking statements, whether
as a result of new information, future events or otherwise.
Contact:
Press Contacts:
Digi International
S. (Kris) Krishnan, 952-912-3125
s_krishnan@digi.com
OR
Investor Contacts:
The Investor Relations Group
Kathryn McNeil, 212-825-3210
mail@investorrelationsgroup.com
