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Analysis: TI-NatSemi deal vaults analog back into limelight
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Analysis: TI-NatSemi deal vaults analog back into limelight
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By Noel Randewich
SAN FRANCISCO (Reuters) - Analog chips are back in fashion after Texas Instruments Inc hatched a $6.5 billion deal to buy National Semiconductor Corp as it looks to cement its place in the mobile computing explosion.
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By Noel Randewich
SAN FRANCISCO |
Wed Apr 6, 2011 5:23am EDT
SAN FRANCISCO (Reuters) - Analog chips are back in fashion after Texas Instruments Inc hatched a $6.5 billion deal to buy National Semiconductor Corp as it looks to cement its place in the mobile computing explosion.
Long neglected on Wall Street, makers of the analog chips -- which manage power, among other things, in everything from tablets to refrigerators -- look set to gain a new investor following as the industry's growth prospects are reassessed.
Shares of Intersil surged more than 8 percent on Tuesday, and Volterra almost 4 percent, as investors took a second look at their valuations, while speculating on whether they too might get acquired.
The tie-up of National Semiconductor and industry leader Texas Instruments will create a company with 17 percent market share and could force closest competitors STMicroelectronics, Infineon Technologies and Analog Devices to consider bulking up, consolidating more of a fragmented market that is benefiting from an explosion in smartphones and tablets.
"It's going to be a bit of a wake-up call to some of the bigger companies in the space," said Stifel Nicolaus analyst Tore Svanberg. "I'm not sure it spurs a lot of M&A activity right away, but it will definitely call some of these companies to reassess their corporate strategies."
The voltage regulator market -- the fastest growing segment of the industry -- expanded 36 percent last year to $9.1 billion, according to IHS iSuppli.
"That suggests to people that some of these names are undervalued and that we will see a possible multiple expansion throughout the sector," Svanberg said.
Texas Instruments is paying a 78 percent premium to buy National Semiconductor.
Analog chips translate real-world phenomena like sound, temperature and light into the ones and zeros that make up digital computer language. Part of their growth over the next few years is expected to come from smartphones and tablets, where their use in regulating electricity consumption is crucial to longer battery life.
They are being used more widely in cars, airplanes, home appliances and industrial equipment. Analyst see their wide range of uses -- including power management, data conversion and amplification -- helping them outgrow the wider semiconductor market in the next few years.
NO PERFECT FIT?
Texas Instruments says National Semiconductor's 12,000 products, many of them used in industrial applications, will complement its own chips. Analysts said that might be why it was willing to pay what appears to be a high premium for the company.
Texas Instruments is paying the equivalent of four times National Semiconductor's current annual sales, a higher valuation than other companies in the analog market. Maxim Integrated Products is trading at 3.2 times sales, and Intersil was at 1.8 times sales.
Apple Inc's iPod Touch media player and Motorola's Xoom tablet computer both use power-related analog chips made by Texas Instruments, according to IHS iSuppli. The average cell phone has as many as 30 different power management parts.
Texas Instruments has steadily expanded its analog business over several years, including the acquisition of Burr-Brown in 2000 for $7.6 billion. And following the global financial crisis, it acquired analog chip manufacturing facilities and equipment at fire-sale prices to boost capacity.
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Analysis: TI-NatSemi deal vaults analog back into limelight
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