Is the sleepy semiconductor space about to finally wake up and begin doing some deals?
Earlier this week, Qualcomm Inc. (QCOM) agreed to acquire WiFi chipmaker Atheros Communications Inc. (ATHR) for $3.2 billion. Big move for the sleepy semiconductor space, and perhaps the beginning of a year-long consolidation push.
That’s the message from investment bank Stifel Nicolaus, in a research report published just prior to the Atheros announcement. The piece is basically a 2011 outlook, laying out 10 themes for the analog and mixed-signal semiconductor market. Tops on the list is increased M&A activity, after what Stifel analyst Tore Svanberg refers to as a decade-long “disappointment.”
He identifes four reasons for the lackluster history, particularly in terms of public-to-public mergers:
- Valuation compression caused by a maturing industry
- Management unwillingness to prioritize shareholder interests
- Fewer investors on chip company boards, particularly VCs who have cashed out of 1990’s investments
- Strong balance sheets (i.e., few motivated sellers).
So, why is the chip market poised for consolidation? Call it the law of eventuality.
Svanberg writes that “time itself” will be the driver, particularly as matured companies accept that they are no longer being undervalued by the markets. He also expects increased investor activism and added internal pressures for change.
Not exactly the most compelling arguments, but it’s worth noting that Svanberg did cite Atheros as one of ten mid-sized companies trying to compete in an overcrowded market (i.e., ripe for the picking). The others were: Hittite Microwave (HITT), Power Integrations (POWI), Semtech (SMTC), Micrel (MCRL), Intersil (ISIL), Monolithic Power Systems (MPWR), Silicon Labs (SLAB), RF Micro Devices (RFMD) and Skyworks (SWKS).