Digi purchases Rabbit Semiconductor for $49 million

Minnetonka, MN— To combine complementary product lines and enhance its position in the device networking market, Digi International reports that it has acquired Rabbit Semiconductor Inc. , previously known as Z-World Inc., for $49 million in cash. Digi bought all of Rabbit’s outstanding shares and stock options. Rabbit will became a wholly owned subsidiary of Digi, which plans to retain Rabbit’s office in Davis, CA.

‘The combination of Digi and Rabbit is very exciting because there is such a tight strategic and cultural fit,’ says Joe Dunsmore, Digi’s chairman, president, and CEO. ‘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, which we believe will roughly double in four to five years.’

Digi expects Rabbit to contribute more than $2 million in revenue for the third fiscal quarter of 2005, and more than $7 million for the fourth fiscal quarter of 2005. Digi further expects Rabbit to contribute more than $31 million in revenue in fiscal year 2006.

Digi also anticipates that one-time expenses associated with buying Rabbit will reduce its earnings per diluted share by $0.04 to $0.06 for 2005’s third fiscal quarter. Digi expects the acquisition to be accretive by $0.01 to $0.02 per diluted share in 2005’s fourth fiscal quarter. 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.

Norm Rogers, Z-World’s founder and CEO, adds that, ‘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.’

Rabbit manufacturesand 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 other applications. Similar to Digi, Rabbit bundles hardware and software together, creating an engineer-friendly development environment. Its customers include Lockheed, Boeing, McDonnell Douglas, IBM, GM, Ford, and NASA, along with thousands of small- and medium-sized companies.

Rabbit’s 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. Meanwhile, Digi’s products, including its ConnectCore and Connect ME 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 in 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.

Digi adds that acquiring Rabbit gives it the widest range of embedded device networking solutions in the industry. This allows device manufacturers to select from a menu of microprocessors, operating systems, microprocessor-based modules, and single board computers that best fit their application, volume, cost, and time-to-market requirements.

Control Engineering Daily News DeskJim Montague, news editorjmontague@reedbusiness.com

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