A few days ago, Murata and Peregrine Semiconductor entered into a definitive agreement under which Murata will acquire Peregrine for $465 million not including Murata’s existing share holdings worth $6 million.  The deal represents a 63 percent premium over Peregrine’s market valuation the previous day.

The acquisition gives Murata, the leading supplier of RF filters and modules for phones, access to leading-edge CMOS power amplifier and RF switch technology, which will help in the development of new LTE products that combine RF filters with RF switches, tuning IC and PA technologies.  This will allow Murata to capture more value in phones.

Peregrine Semiconductor was founded in 1990, and eventually found success with RF CMOS silicon on sapphire (SoS) transmit-receive switches for cellular phones, as these switches could match the performance of the market-dominant GaAs p-HEMT switches but with smaller footprint.   In 2005, Peregrine started to ship RF CMOS SoS switches in million-piece quantities to antenna switch module suppliers, and by 2011, Peregrine’s CMOS SoS switches had taken more than half of the market for RF switches in phones.  In 2012 and 2013, Peregrine Semi shipped a combined 1,000 million RF switches.

Sales to Murata represented 69 percent of revenue generated by Peregrine Semi in 2013 raising the question: Is this acquisition designed to enhance Murata’s position in RF front ends, or is it a purely defensive move?  In March 2012, Murata acquired the PA business of Renesas, but since then, Murata’s share in PAs has not grown.    Admittedly prior to the acquisition, Renesas mainly shipped LDMOS-based PAs for low-cost GSM / GPRS and EDGE handsets, a segment that has come under increasing cost pressure.   Renesas had had limited success with its more advanced products including multimode multiband PAs.

Apart from providing Murata with a guaranteed supply of CMOS RF switches, the acquisition provides access to Peregrine’s antenna tuning ICs (“DuNE” components) and Peregrine’s new CMOS multimode, multiband PA (MM-PA), which should start to ship in 2015, better positioning Murata to compete with Skyworks, RFMD-TriQuint and Avago Tech.

Strategy Analytics has previously stated that from Murata’s position of supremacy in passive RF front end components and modules, the company can attain a Top 4 market share position in PAs.  With this latest acquisition in the active RF component space, we think that Murata will have to spend at least $40 million to $50 million per year on R&D on the former Peregrine products and technology to establish and maintain a significant presence in CMOS PAs and bolster its cellular RF front end solutions portfolio:

• Murata mainly sells low-margin passives, RF filters, and modules based on these.  We surmise that the company has not invested enough R&D in its PA technology to keep up with Skyworks, RFMD, Avago Tech and TriQuint, which have branched into filters and modules that compete with Murata;

• Peregrine Semi spent an average 22 percent of sales on R&D in 2013 and the first half of 2014, comparable to the top PA suppliers.  Murata historically has spent only 7 percent of sales on R&D.

• If Murata maintains Peregrine’s momentum in PAs and if Peregrine’s CMOS MM-PAs meet claims, the acquisition could give Murata a nice boost in revenue and RF front-end share starting in 2016 as LTE begins to dominate over older cellular technologies.

If the company continues to invest in Peregrine Semi’s products and technology, Murata has the potential to become a top-four supplier of cellular PAs alongside Skyworks, RFMD-TriQuint and Avago Tech, and this will go a long way toward maintaining Murata as the leading supplier of RF front-end components in cellular devices.

Clients of Strategy Analytics RF & Wireless Components consulting service can read further detailed analysis HERE

Steve Entwistle (& Chris Taylor)