Components > RF & Wireless Blog

M&As Up in 2011

by Chris Taylor | Aug 23, 2011

Merger and acquisition activity in the RF & wireless component industry increased in Q1 2011, with Qualcomm’s proposed acquisition of Atheros for $3.1 billion topping the list.  Broadcom, Cavium Networks, Hittite Microwave, MediaTek, and NetLogic also announced acquisitions, most of these topping $300 million in price.

In Q2 2011, the M&A market really heated up with Skyworks’ acquisition of SiGe Semiconductor for $275 million, TI’s proposed acquisition of National Semiconductor for $6.5 billion, and AT&T Mobility’s intended acquisition of T-Mobile US for $39 billion.  The AT&T-T-Mobile deal, while not involving component suppliers directly, would accelerate the rollout of wireless broadband and LTE, and would drive new band and mode requirements for PAs and chipsets in cellular terminals.

Why are M&As up this year in RF & wireless components, especially among larger firms?  RF & wireless firms generated record profits in the first half of the year along with substantial cash.  One argument is that tech firms want to invest this cash, but this argument does not seem to hold up.  With interest rates at historic lows, holding cash has lower opportunity costs, and future cash flows have higher present value, so there is every incentive to accumulate cash instead of investing it.  Instead, we would argue that many RF & wireless component firms flush with cash have been able to reduce their debt as well as buy back shares of common stock to help boost share prices, which has made them more financially secure and more likely to make acquisitions, even if this means taking on a little more debt.  As for the size of the acquisition targets, large, publicly-traded firm have well-reported, relatively stable performance, which in many ways makes them more attractive targets than small, privately-traded firms.

The recent low interest rates and profitability of RF & wireless component firms may explain the source of funding for acquisitions, but what about motives?  In the case of Qualcomm acquiring Atheros, the #2 ranked Wi-Fi chip vendor in terms of market share, Qualcomm benefits from new products, new technology, new customers, and cross-selling opportunities, specifically in cellular chipsets + Wi-Fi chips.  In comparison, Skyworks’ buying SiGe Semi simply puts Skyworks in the lead position in Wi-Fi power amplifiers and front-end modules with at least 20 percent more market share than the next competitor.

In the case of National Semiconductor, the motives are not so clear.  Combining TI and National, both strong players in analog & mixed signal, will result in broader product portfolios, but National mostly contributes high-performance and specialty products to the mix.  For example, in RF, which makes up a small percentage of National’s sales, National contributes data converters, PLL / synths, RF power detectors, VGAs and power management ICs for infrastructure, a relatively small market.  TI already makes converters, DSPs and CFR / DPD chips for infrastructure, but these products seem to have no particular synergies with National’s infrastructure products.

National Semiconductor has suffered from lackluster financial performance over the past several years, and TI executives probably believe that they can turn National around with the assistance of TI’s sales and distribution network, some product rationalization and cost controls.  Whether this is realistic is not clear.  TI’s executives will surely receive compensation for the deal in any case.

What does more M&A activity mean for the remaining RF & wireless component suppliers?  With recent stock market volatility combined with low interest rates and strong cash positions at many firms, we expect to see more blockbuster M&A deals in the second half of the year.

For more about the RF and wireless component industry, see “RF Component Industry Review: January - March 2011.”

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