Chip shares jump as TI deal sparks M&A chatter

NatSemi merger sparks speculation of more deals

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By Benjamin Pimentel, MarketWatch

SAN FRANCISCO (MarketWatch) — Shares of some chip makers, led by Intersil Corp and Semtech Corp, rose Tuesday as news of Texas Instruments buying National Semiconductor sparked speculation of more M&A deals.

Intersil (ISIL 13.28, +1.16, +9.57%)  shares soared more than 9%, while Semtech (SMTC 26.00, +1.63, +6.69%)  was up more than 6% and ON Semiconductor (ONNN 10.01, +0.34, +3.56%)  gained more than 3%, following the announcement that TI (TXN 34.81, +0.70, +2.04%)  was gobbling up National Semi (NSM 24.14, +10.07, +71.54%)  in a $6.5 billion merger deal.
NatSemi’s stock was up more than 70%, while TI rose about 2% as analysts also speculated on more mergers in the market for analog processors used for a range of products from consumer electronics to factory equipment.
The deal would turn TI into an even more dominant player in that sector, pressuring rivals including Analog Devices (ADI 38.67, +0.17, +0.44%)  and Maxim Integrated (MXIM 25.59, +0.25, +0.99%)  .Maxim was up more than 1%, while Analog Devices gained a fraction.
Both shares were downgraded to neutral by Cowen and Company on the competitive pressure posed by the TI deal.
In a note, analyst John Barton said he cut his rating for Analog Devices to neutral from outperform because with the TI deal, “We see an analog power house that will have a dominant presence with respect to customer facing field support.”
Barton made the same argument in a note that downgraded Maxim to neutral from outperform.
Auriga analyst Daniel Berenbaum also said in a note that with TI poised to expand its share of the analog chip market, rivals such as Maxim and Analog Devices “will be forced to acquire smaller competitors to gain critical mass.”
FBR Capital’s Craig Berger also wrote that “more consolidation is possible in the analog space given the fragmented and diffuse nature of that market, and given that TI is so much larger than its next few competitors.”
“We would not be surprised to see TI acquire more analog firms, or other analog firms merge in order to build scale and manufacturing efficiencies to more effectively compete against TI,” Berger said.
However, Cody Acree, analyst with Williams Financial Group, argued that he does not see a wave of consolidation taking place as a result of the TI-National Semi merger.
“You’re really betting on an industry consolidation that we have not seen any evidence of,” he said in a phone interview. “You would think that consolidation of the analog market makes a lot of sense, but at the same time, there’s a reason why it has not consolidated. It’s because of the disparate focuses of every company.”

Benjamin Pimentel is a MarketWatch reporter based in San Francisco.