Will Texas Instruments Be Part Of The Recent Mergers & Acquisitions Wave?
The latest round of mergers in the semiconductor industry has some observers wondering if Texas Instruments (NASDAQ:TXN) will jump into the ring. TI isn’t commenting but we find the company to be a potential acquirer.
Singapore-based chipmaker Avago Technologies Inc. is set to buy California-based Broadcom Corp. for $37 billion in cash and stock, the biggest deal yet in the industry. The mega deal will create a company with a market value of $77 billion and revenue of $15 billion, making it the third largest chipmaker by market capitalization. The deal would push TI into fourth place among chipmakers, with a market cap of $58.2 billion. TI posted revenue of $13 billion last year. [1]
Avago-Broadcom is the latest deal in a wave of consolidation in the semiconductor industry this year. Earlier in May, Avago closed its acquisition of California-based Emulex Corp. for more than $600 million. And Microchip Technology Inc. said it will acquire Micrel Inc. for nearly $2.5 billion. Last month, MaxLinear bought Entropic Communications Inc. for $287 million. In March, Dutch chipmaker NXP Semiconductors said it will buy Austin-based Freescale Semiconductor Ltd. for $11.8 billion, and Lattice Semiconductor bought Silicon Image for $600 million. Meanwhile, Intel Corp. is reportedly acquiring Altera Corp. [2]
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The industry is seeing a major surge in consolidation owing to the chipmakers’ eagerness to become bigger and more competitive in a slower growing market, even as costs climb to design and produce devices. Semiconductor devices are used in many electrical and electronic products from smartphones to washing machines. They range form simple single-function devices with low ASPs to large complex micro- and networks processors costing hundreds and even thousands of dollars each. Moreover, they are manufactured with a wide range of processes ranging from proprietary lagging node processes used for linear or analog products to the most advanced CMOS processes used to advance Moore’s Law. They also range from off-the-shelf products made by multiple manufacturers to single-socket devices designed by individual makers for individual uses.
TI’s last big acquisition was its $6.5 billion purchase of California-based National Semiconductor Corp. in 2011. When asked about TI’s not-so-active participation in consolidation in the industry today, TI Chief Executive Rich Templeton said, “If everybody’s buying, it’s probably a good time not to be buying.” He further added that TI will continue to be “selective and pretty measured in how the company allocates capital.”
The company added that among the things TI looks for in acquisitions are that the target company is an analog chipmaker, preferably in the industrial or automotive markets, and that a deal must provide a strong rate of return. TI’s most of the recent acquisitions have a free cash flow yield of 3% to 4%, while the National Semiconductor deal was about 6%. [3]
According to the source, “Templeton seemed to think that the company could do a better job buying its own stock back.” TI has always been an acquirer and seller, having evolved from a conglomerate in the 1990s with a diversified semiconductor business to a focused analog company with an even more focused digital offering. Much of this latter transformation, especially with the semiconductor business, has occurred since Mr. Templeton assumed his earliest leadership positions in the company. Thus has TI has made its strategy in the last seven to eight years to focus on the analog and microcontroller markets.
Our price estimate of $50 for TI is at an approximate 7% discount to the current market price.
See our complete analysis of Texas Instruments here
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- Avago to buy Broadcom for $37 billion, Reuters, May 28th, 2015 [↩]
- Intel to acquire Altera for $16.7 billion, ToI, June 2nd, 2015 [↩]
- Will Texas Instruments sit out wave of mergers and acquisitions?, Dallas News, May 28th, 2015 [↩]