Genesis Microchip Inc. - Company Profile, Information, Business Description, History, Background Information on Genesis Microchip Inc.

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Company Perspectives

Technology is the primary driver of Genesis Microchip's leadership position in both the flat-panel TV and LCD monitor markets. Because of the breadth of its intellectual property, from the company's initial founding as well as strategic acquisitions that contributed mixed-signal integration, Faroudja video processing and DTV technologies, the company serves all of the display markets easily and cost-effectively. Our areas of technological expertise include: Scaling, Response Time Control, Advanced Color Management, Film Mode, Format Conversion, Motion Adaptive Deinterlacing, Directional Correlation Deinterlacing, Edge Enhancement, Cross-color Suppression, Noise reduction, Video Decoding, and the DisplayPort digital interconnect standard.

History of Genesis Microchip Inc.

Genesis Microchip Inc. is a leading designer, producer, and marketer of integrated circuits called display controllers that receive and process analog and digital video and graphic images for viewing on flat-panel display screens. The company's display controllers are used in an array of flat-panel display devices, such as flat-panel televisions and computer monitors. The company also is pursuing established display applications, including liquid crystal display (LCD) television, plasma television, digital cathode-ray tube televisions, digital television, and other display devices for the consumer electronics market. Headquartered in Silicon Valley, California, Genesis markets its products globally through a network of support centers in Taipei, Taiwan; Seoul, South Korea; Shenzen, China; Tokyo, Japan; and Singapore. The company operates two development sites in Toronto, Canada, and Bangalore, India.


Genesis Microchip Inc. began as a Canadian company in 1987 and changed its domicile to become a Delaware corporation in February 2002. The company rapidly became a success story for its innovations in display controllers for the flat-panel display markets. In 1994, Genesis introduced a new technology called Acuity that could implement image resizing in a single signal processor (DSP) chip without losing crucial pixels. Although the technology was 30 years old, it presented hurdles to implement in hardware. The key, however, rested in developing an image processing capacity that could facilitate image resizing--reducing or enlarging the size of an image--without losing the quality of the image itself. Reducing the size of an image, for example, always required eliminating pixels or lines, while enlarging an image required adding pixels. Until the early 1990s, successful image resizing necessitated up to five image processing boards, costing thousands of dollars. Genesis, however, discovered a way to provide the same capacity in a single chip through its Acuity technology, which it offered in two chip versions. The technology could facilitate image resizing without losing crucial pixels. The company developed the Acuity technology's resizing algorithms and architecture in conjunction with North Shore Laboratories of Princeton, New Jersey.

Genesis Pioneers Its Way to Growth

In 1996, Genesis and National Semiconductor Corp. teamed up to showcase a breakthrough liquid crystal display driver aimed at the growing cathode-ray tube replacement market. The two firms began providing flat-panel producers a reference design that combined Genesis's video processing and National Semiconductor's low voltage differential signaling technology. The combination provided faster transmission of sharper full-motion video images. In the following year in 1997, Genesis continued its record of innovation by introducing the gmZ1 Advanced Image Magnification chip, offering crisper graphics and video on flat-panel displays. The company claimed that the chip could resolve de-interlacing, zoom scaling, display synchronization, and overlay control problems for liquid crystal and plasma displays as well as Digital Light Processing-based projector systems, and large screen TVs. The powerful gmZ1 chip found ready acceptance by a number of producers of flat-panel displays, including Apple Computer's Studio Display monitor, a new flat-panel active matrix LCD that offered images twice as crisp and bright as those of standard cathode-ray tube monitors.

In 1998, Genesis--already a leader in imaging, digital, and graphics processing integrated circuits (ICs)--announced that it was taking a $500,000 equity position in Toronto-based digital image chip specialist, Shamrock Semiconductor. The company aimed to expand its customer base in the video and graphics market, which already included such firms as Apple Computer, CTX Opto-Electronics Corp., Hitachi, Ltd., In Focus Systems, LG Electronics, Texas Instruments, and more than 180 other companies. In 1998, Genesis introduced two new ICs, the gmZ2 and gmZ3, which were improved low cost alternatives to the industry-leading gmZ1 integrated circuit for producing high-quality graphics and video. In addition to being designed for flat-panel displays, projection systems, home theater equipment, and other applications, the new chips provided effective auto-detection and auto-configuration support. The chips also offered Genesis's ImEngine de-interlacing process, used to convert interlaced television-style video for display on non-interlaced systems, such as personal computer monitors. At the end of fiscal year 1998, Genesis reported record revenues of 248 percent over fiscal 1997 to $15.7 million. The company's success was attributed to the introduction of the ImEngine product line aimed at both the projection system market and the emerging LCD monitor market in which Genesis already had an impressive list of customers manufacturing LCD monitors.

In June 1999, Genesis completed a merger agreement with privately held Paradise Electronics, Inc., of San Jose, California, a designer and manufacturer of highly integrated mixed-mode integrated circuits for the flat panel monitor market. Under the terms of the merger, 4.5 million shares of Genesis common stock, worth about $130 million, would be exchanged for all outstanding shares and options of Paradise Electronics. Genesis saw the merger as a way to gear up for what it anticipated would be an enormous surge in the flat-monitor market in the years ahead. In this regard, the deal also would strengthen its position in the race to capture the market for next-generation LCD monitors. Already, a host of start-ups had entered the market with integrated solutions that in some cases surpassed Genesis's own offerings. Paradise provided a means to both strengthen and advance Genesis's portfolio of products and ability to serve other markets such as digital displays, HDTV, projection systems, DVD players, and other applications. With the merger, Genesis believed it was positioned to be the premiere display chip player in the evolving digital display revolution. The merger, however, ignited some controversy as Genesis president and chief operating officer Stephen Solari left the company toward the end of the negotiations.

In August 1999, the company introduced an innovative new video decoder chip--the gmD2000, designed to enhance image quality of decoded NTSC/PAL video. Genesis also announced a $1.1 million minority equity investment in privately held Techwell, Inc., of San Jose, California, a designer of video decoder integrated circuit products. Company Chairman and CEO Paul M. Russo said that the investment in Techwell would give Genesis new visibility in the consumer video electronics and television markets. In September 1999, Genesis's rapid pace of innovation led to the radical advancement of its video/graphic-processing technology with the gmZ4 integrated circuit. The new, third-generation chip further widened the image quality gap between the company and its competition. The chip was developed both to provide high visual quality and to reduce the cost of flat-panel displays, ultra-portable projection systems, home theater gear, and other pixilated display applications. In January 2000, Genesis introduced another new chip, the gmZAN1 LCD, a cost-effective, feature-loaded integrated circuit for LCD monitors.

In February 2000, Amnon Fisher was appointed as the company's new president and chief operating officer. Before joining Genesis, Amnon was senior vice president and general manager of the consumer products division at NeoMagic where he compiled a successful track record in managing the various aspects of the IC business. By April, however, Paul Russo turned over his day to day responsibilities as CEO to Amnon, in order to focus on strategic issues as a working chairman of the board of directors. With Amnon in place, the company looked forward to the next stage in targeting the high-volume markets including LCD monitors, digital CRTs, and the emerging digital video markets. Amnon joined Genesis at a propitious time as the company soon reported annual revenues of $53.3 million, a 37 percent jump from fiscal 1999. The company was profiting from its synergy with Paradise Electronics, which led to the introduction of an array of innovative new products.

In July 2000, Genesis spun off its image warp technology and business into a separate start-up firm. Genesis's initial $2 million investment enabled the company to begin operations and focus on marketing its warp technology chip, which served to digitally manipulate real-time video images while maintaining image quality and detail. By the end of fiscal 2001, Genesis's 19 percent revenue growth reflected its ability to continue expanding and solidifying its leadership in the flat-panel monitor market and other high-growth markets of digital television. The company's sustained revenue growth put it among Deloitte & Touche's fastest-growing 500 technology companies in North America.

Genesis Stumbles amid Mergers and Acquisitions

In September 2001, Genesis announced an agreement to acquire rival Sage Inc. of Milpitas, California, a maker of chips used in flat-panel televisions, computer monitors, and Internet appliances, for $241 million in stock. The merger promised to create a technology leader with a history of innovation and a portfolio of products for the rapidly growing semiconductor industry. The transaction also was anticipated to greatly expand Genesis's global reach, giving the combined company significant research and development, and service and support operations in Canada, the U.S., India, Korea, and China. Moreover, with the acquisition of Sage, Genesis's share of the flat-panel market would jump to from 50 percent to 70 percent. The acquisition was completed in February 2002 for $402 million after shareholders approved the merger and the required change in domicile from Canada to the U.S., which was a condition of the acquisition of Sage.

In March 2002, Genesis won an auction in bankruptcy court to acquire the assets of VM Labs Inc. of Mountain View, California, including all patents, trademarks, and intellectual property for $14.2 million in cash. Genesis believed that VM Labs' decoder technology would expand its product offerings in consumer electronics, especially in the DVD market. Genesis also expected to benefit from the firm's relationships with major electronic companies, including Motorola, Samsung, and Toshiba. In the same month, Genesis aggressively moved to file a patent infringement suit against Taiwan's Media Reality Technologies, Inc. (MRT), SmartASIC Inc., and Trumpion Microelectronics, Inc., in the U.S. District Court for the Northern District of California and later with the U.S. International Trade Commission (ITC). In the suit, Genesis sought monetary damages and a permanent injunction barring the companies from producing, using, importing, or selling the allegedly infringing products in the United States. MRT quickly responded to the legal action in April by suing Genesis in federal court in San Francisco seeking a declaratory judgment that it was not infringing on Genesis's patent. The complaint also charged that Genesis misappropriated confidential trade secrets from MRT and that Genesis used the trade secrets to interfere with its business operations, resulting in lost revenues. In August 2004, the ITC ruled that the companies had infringed on Genesis's U.S. patent titled "Method and Apparatus for Upscaling an Image in both Horizontal and Vertical Directions." With the ruling, the ITC issued an exclusionary order barring the import of their display controllers into the U.S., in addition to LCD monitors and boards containing these products.

In June 2002, Genesis anticipated that its first quarter 2003 revenues would range from $41 million to $43 million, compared to previous estimates of $60 million. The company attributed the decline in revenues to a drop in orders, stemming from losing business to competitors and panel manufacturing constraints that produced excess inventories. As demand for its chips began to slide, the company adopted a shareholder rights plan to ward off potential investors from acquiring significant shares of its common stock.

The company's sliding revenues and stock price, however, did not stop it from signing a March 2003 deal to acquire rival Pixelworks for about $584 million in stock. Under the terms of the agreement, the companies would finalize the deal as a reverse merger, with Pixelworks issuing 2.3366 shares of stock for each share of Genesis. The deal would give Genesis shareholders 62.5 percent of the new company with Pixelworks shareholders getting 37.5 percent. With the acquisition, Genesis added Pixelworks' 75 percent market share of the world's projector ICs to its own leading 60 percent share of LCD monitor chips. Because the two companies had been investing heavily in advanced television chips, the merger would enable the combined firms to better compete with major consumer electronics players such as Sony Corp. and Samsung Electronics Company Ltd., which developed their own chips.

The transaction, however, drew an antitrust review by the Federal Trade Commission (FTC). With the FTC's antitrust review underway, in July 2003, Genesis was ordered by a federal court in Virginia to uphold a memorandum of understanding with Silicon Image, a company that owned patents to part of a new display interface that gained rapid acceptance from the industry's major consumer electronics manufacturers. The memorandum of understanding settled a patent infringement dispute and directed Genesis to pay for access to Digital Visual Interface (DVI) and High-Definition Multimedia Interface (HDMI) technologies owned by Silicon Image. The patent licensing dispute forced the ouster of Genesis chairman and chief executive James Donegan, who had verbally agreed to the MoU, allegedly without the authorization of the board, to resolve a patent lawsuit filed by Silicon Image. With few options other than to pay for the rights to a display interface that was on the verge of dominating the media industry, analysts predicted that Genesis' financial position would be considerably weakened. As a result, the stocks of both Genesis and Pixelworks began selling off as investors lost faith in the merger. In August 2003, Genesis and Pixelworks jointly announced an agreement to terminate the proposed merger in the interests of their respective shareholders.

With the termination of the merger, the company's hopes for immediately strengthening its market share in its core businesses collapsed. Genesis was facing intense competition and pricing pressures in its critical LCD monitor business, which declined by 11 percent in its fiscal 2004 first quarter. Indeed, a quarter of profit losses, a ruined merger, brutal price erosion, the ousting of the company's chief executive, and the rise of a number of competitors seemed to cast a shadow over Genesis's record of success. Still, the company had much going for it, including leadership in the fast-growing market for LCD-monitor controller ICs and a strong position in the rapidly expanding market for LCD TV chips.

Genesis Regains Growth and Profitability

By the beginning of 2004, the company seemed to be putting its difficulties behind it and trying to position itself to take advantage of the rapidly growing market for LCDs in desktop personal computers and televisions. In July 2004, Genesis relocated its Taipei offices into larger facilities, adding engineers and sales staff. In addition, in November, 2004, Genesis announced the appointment of Elias (Elie) Antoun as its new president and chief executive officer. Antoun brought more than 20 years of semiconductor and consumer electronics experience to Genesis. His prior experience included serving as president and chief executive officer of both Pixim, Inc., an imaging solution provider for the video surveillance market, and MediaQ Incorporated, a mobile handheld graphics IC company. He also had held a variety of executive positions with LSI Logic Corporation.

In June 2005, Genesis signed a strategic licensing agreement with Meridian Audio Limited, a United Kingdom-based producer of high-end audio, video, and home theater systems and components. The agreement gave Meridian rights to integrate, manufacture, and distribute home theater solutions under Genesis's Faroudja brand name as part of Meridian's audio/video line of products. Under the terms of the agreement, Genesis would cease the production and distribution of its advanced Faroudja home theatre solutions, but would continue to develop advanced video processing technologies with Meridian for its Faroudja-based products. A sign that Genesis was back to profitability came with record revenues of $59.8 million for the first quarter of fiscal 2006. The company's profitable quarter stemmed from significant design achievements in both the LCD monitor and flat-panel TV markets. With continued improvement in the marketing of its products on a worldwide basis, in September 2005, Genesis opened a new regional sales and engineering facility in Singapore in close proximity to key customers, including Dell, Philips, TTE, and Toshiba. According to the company, the facility promised to support its local customer base as well as diversify its supply chain and provide new business opportunities in emerging markets such as Malaysia, Thailand, Indonesia, and Vietnam. Genesis closed out fiscal 2006 with a 32 percent surge in total revenue to $269.5 million compared to $204.1 million for fiscal 2005. The company attributed the financial results to a robust 81 percent growth in flat-panel revenues and a major improvement in earnings.

Principal Competitors

Pixelworks Inc.; Silicon Image Inc.; STMicroelectronics N.V.


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