$12-Million Stock Swap for Verticom : Western Digital to Buy Computer Graphics Maker

Western Digital of Irvine, continuing to broaden its line of personal computer products, has agreed to buy a Silicon Valley manufacturer of computer graphics devices in a stock swap valued at $12 million.

Under terms of the deal, Western Digital would acquire the stock of Verticom Inc. of Sunnyvale and make it a wholly owned subsidiary. In exchange, Irvine-based Western Digital would issue $12 million in Western Digital stock to Verticom shareholders.

The Verticom deal continues Western Digital’s strategy of expanding its line of personal computer products through acquisitions. In 1986, the Irvine firm entered the computer graphics field by buying Paradise Systems, a maker of graphics devices based in Brisbane, San Mateo County.

Earlier this year, Western Digital purchased the disk-drive business of Chatsworth-based Tandon Corp.

The Verticom purchase is “a strategic move reflecting our recognition of significant opportunities” in the computer graphics business, said Chester A. Brown, a Western Digital vice president and general manager.

Robert V. Dickinson, Verticom’s president and chief executive, said the deal evolved out of discussions between the two companies about a joint venture to develop a new product. “It then transpired that an acquisition would probably work out better,” he said.

“We felt we needed the manufacturing, distribution and financial strength of a larger company,” added Dickinson, who will continue to head Verticom and become a Western Digital vice president.

The deal is subject to approval of both companies’ directors and a majority of Verticom’s shareholders. Approval is expected in July.

Founded in 1982, Verticom develops computer chips and boards that control the picture on a computer screen. Verticom’s products are used in personal computers to produce high-resolution graphic images for engineering and publishing applications.

Verticom’s stock has been publicly traded since May 1986.

For the year ended last December, Verticom had earnings of $25,000 on sales of $12.5 million. For 1988’s first quarter ended March 31, Verticom lost $138,000, contrasted with a profit of $237,000 in the same period a year ago. The company’s sales dropped 7%, to $2.7 million from $2.9 million a year earlier.

Dickinson attributed the earnings decline to an industrywide shortage of computer memory chips. The shortage doubled the cost of the chips Verticom buys for use inside its products, he said.

Western Digital is a manufacturer of semiconductors, data storage devices and other computer products.