Avago Technologies Ltd might be one of the pacesetters among companies looking to make a purchase in the semiconductor industry after its advanced talks last month to acquire Freescale Semiconductor Ltd fell through.
Demand for cheaper chips and new products to power Internet-connected gadgets is expected to drive chip industry consolidation beyond NXP Semiconductors NV’s US$12-billion purchase of Freescale announced this week, analysts said.
“The pace of M and A [mergers and acquisitions] in semis has been elevated,” Jefferies analyst Mark Lipacis said. “We expect more of the same.”
Avago’s main business is its wireless segment, which last quarter accounted for about 40 percent of revenue, and it sells radio frequency chips for products such as Apple Inc’s iPhone.
The company, which has a market cap of US$32 billion, could now look at expanding in areas ranging from analog semiconductors to radio frequency technology, and could roll up several smaller analog companies or pursue a larger acquisition, reports said.
It could not be learned what companies Avago was pursuing.
Analysts see companies that make chips for connected devices as top contenders for deal activity.
Relatively small chipmakers with annual sales below US$1 billion in markets from the auto industry to consumer gadgets are in the crosshairs of larger players awash in growing amounts of cash and rising stock prices not seen in more than a decade.
With steady demand from automakers, makers of consumer electronics and data center operators, chip companies have cut costs in recent years and returned growing amounts of cash to shareholders who, in turn, have rewarded those companies’ stocks.
Chipmakers that roughly fit the target model for potential deals, in terms of size and products, include smaller companies such as Micrel Inc, Intersil Corp, Atmel Corp, M/A-COM Technology Solutions Holdings Inc and Silicon Laboratories Inc, analysts said.
These companies make a variety of chips that manage power, allow wireless communication and control devices, among other things.
Features such as Wi-Fi or Bluetooth that once required chips sold by separate companies can now be squeezed onto single pieces of silicon.
The firms could pursue mergers with smaller peers or could also become targets for larger chipmakers such as Intel Corp, Qualcomm Inc, Texas Instruments Inc and Skyworks Solutions Inc, analysts said.
Worldwide semiconductor mergers and acquisitions reached US$31 billion last year, the most since 2011, Thomson Reuters data show. In the 12 months through March 2, 472 chip merger and acquisition deals were made worldwide, up from 383 in the previous year.
Artiman Ventures managing director Tim Wilson expects large chipmakers to buy startups with specialized technologies, many focusing on emerging areas such as wireless home appliances and other connected devices related to the Internet of Things.
For example, top mobile chipmaker Qualcomm in October agreed to buy Britain’s Cambridge Silicon Radio PLC for US$2.5 billion to bolster its offering in Bluetooth, another short-range communication technology.
“If you look at what’s being acquired, everyone is filling in product gaps,” Wilson said.
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