Well, it finally happened! Two companies that no one really saw being together, got together. Now that it is happening, no one can understand what took these two so long to find each other and they are beginning to explore what each brings to the table! Of course, I am talking about the just announced merger of RFMD and TriQuint. The roots of this merger seem to be in that thorny “business stuff” that we as engineers tend to avoid whenever we can. It makes for great speculation about what transpired and what this means for the industry, however!
At the end of October, TriQuint’s second largest investor, Starboard Value LP sent a letter (Starboard Value's Letter to TriQuint) to TriQuint’s CEO, Ralph Quinsey. The gist of the letter was that the performance of TriQuint’s handset group was masking the value of the other parts of the company. They presented an analysis of TriQuint’s recent performance versus its peers and posed several questions to the board. The common threads among these questions addressed restructuring the business, the potential sale of the PA business and the viability of closing foundries. In December, Starboard said it planned to nominate six candidates for TriQuint’s eight board positions at its next annual meeting. This was Starboard’s attempt to ensure that TriQuint’s management would recognize their concerns.
Coincidentally or not (and I suspect not), the next development was the announcement of the impending “merger of equals”. This deal makes a lot of sense and seems very complementary for both sides. RFMD has a strong presence in the cellular market with silicon and GaAs products and this group seems to be on a strong upward trajectory. RFMD announced their latest foray into the cellular SoC arena with their “RF Fusion” device that integrates all major transmit and receive RF functionality, from the transceiver to the antenna. To RFMD’s capability for PAs, antenna tuners, APT and ET technology, transceivers, power management and modules, TriQuint will add internal SAW and BAW filter capability, along with its own amplifier and packaging expertise. TriQuint brings a wealth of aerospace and defense heritage with strong positioning for next generation government funding for things like GaN and new process development. TriQuint’s non-handset market participation also seems to complement RFMD’s very well. The combined “Network” portion of the new company is estimated to be in the $500 million range, making it very formidable indeed!
What does this mean for the industry in general? First, the devil is in the integration details in any acquisition and the business cannot stop during integration, so RFMD/TriQuint faces some challenges. Both companies have successfully integrated other acquisitions, but the scale is much larger for this one. Part of the integration challenge will be “right-sizing” of the workforce and the facilities, so the final company may look somewhat different from the sum of the parts.
Assuming all goes according to plan; the combined company will certainly challenge Skyworks as the largest GaAs device manufacturer in the industry! Based on 2012 results, the new company would have been about 8% larger. When I tabulate the 2013 performance, I think this gap will widen a bit more. The scale of Skyworks and RFMD/TriQuint will be much larger than any other companies in the GaAs space, save for Avago. The economies of scale and the funding for development that these two companies will likely have will be substantial. The question will be how does the rest of the industry respond?
I think we may be seeing some of the response already. The recent “Global 1”development from Peregrine and Qualcomm’s RF360 platform already has people speculating about increased consolidation in the GaAs industry. At first glance, I’m not sure that anything other than a land rush toward CMOS-based PAs will cause that to happen. However, facing companies with the scale of Skyworks and RFMD/TriQuint in the GaAs market might get some companies thinking seriously about acquisitions.
In the last several months, we have seen M/A-COM acquire the optical business from Mindspeed and more recently, GaN manufacturer Nitronex. We have also seen Avago acquire CyOptics for a bigger presence in the optical market. I think this may be an interesting trend to monitor. It may not make sense, or even be possible now to approach the scale of Skyworks or RFMD/TriQuint in the GaAs and RF handset component market. The better play may be to look at getting bigger in other non-handset market segments. The challenge here will be to factor in the smaller TAM and make sure the business model still makes sense, so that we don’t start to see a spate of failed acquisitions.
It will be very interesting to monitor the integration effort of RFMD/TriQuint, as well as the response of the other companies in the GaAs device industry.
-Eric