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LSI Logic (NYSE: LSI) fell US$1.77 to
$18.92 in morning trading Monday, after the company, which makes integrated
circuits and storage 
systems, said it agreed to acquire communications
processor maker C-Cube Microsystems for
stock worth about $878 million.
C-Cube shares jumped on the news, rising $5.56 to $14.38 by midmorning.
LSI said it will exchange 0.79 common shares for each outstanding C-Cube common share as part of the definitive merger agreement. LSI also said it expects to complete the acquisition by June 30th, with the deal adding to earnings for this year.
"The acquisition of C-Cube will enhance LSI Logic's technology strengths in designing and manufacturing [products and systems] for [its] customers in rapidly growing communications and broadband entertainment markets," said chairman and chief executive officer Wilfred J. Corrigan.
C-Cube provides chips for digital set-top boxes, DVDs and other devices.
Customers include Sony, Samsung, JVC and Motorola (NYSE: MOT) 
. According to LSI,
the merger with C-Cube will result in a company that offers "a complete
portfolio of technologies for
high-growth cable, satellite, terrestrial and DSL set-top box markets."
Earlier this month, LSI warned of a slowdown in demand for its products, lowering its outlook for the first quarter ending in March.
The company said a "sharp decline" in U.S. customer demand and a "widespread inventory correction" would hurt results for the quarter. Corrigan added at the time that communications and storage would be "the growth drivers" when business picks up.
LSI and C-Cube are both based in Milpitas, California.
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