Technology

4 Likely Semiconductor Merger and Acquisition Targets

Jon C. Ogg

Published: June 1, 2016 10:55 am

Last Updated: January 13, 2020 7:20 am

It is no secret that the semiconductor industry is in a serious consolidation wave. In 2015 and into 2016, the number of mergers has been difficult to count. The tally is literally into the tens of billions of dollars worth of companies that have been acquired into larger chip companies. Some investors, analysts and portfolio managers believe that the great chip consolidation phase is not yet over.

In a brief CNBC appearance, Kevin Landis, a portfolio manager for the Firsthand Funds portfolio, detailed four chip and chip-related companies that could be acquired. There is of course no assurance that all or any of them will become acquisitions, but that is the risk in any bait shop targeting.

Firsthand Funds is a tech-focused investment management firm that dates back to 1994 and used to be known as the SiVest Group. Landis talked up growth and value stories on Wednesday. He spoke of four consolidation candidates (meaning M&A bait) that could be rolled up by larger players. These are small to mid-cap stocks in the chip space.

24/7 Wall St. took a look at these four companies because of the waves of consolidation in every single aspect of the semiconductor space. We included a description of what the companies do so investors know why they might be attractive. We went further into the actual earnings and additional color given directly by each company. Also included is trading history, valuation metrics from analysts and the actual market cap of each.

Landis is chief investment officer and manages the Firsthand Technology Opportunities Fund (TEFQX). As of April 30, its one-year performance was −12.34%, but its 10-year performance (which of course includes the hard times of the recession) was over 9%. There is also the Firsthand Technology Value Fund Inc. (NASDAQ: SVVC), which is a closed-end publicly traded venture capital fund that invests in technology and clean tech companies. As of April 30, the closed-end fund’s estimated net assets of the fund were approximately $168 million.

These are four chip companies considered to be prime targets for M&A activity. There are of course other chip companies that have been rumored M&A targets on and off over the years, some less known and some equally known or even better known.

Integrated Device Technology

Integrated Device Technology Inc. (NASDAQ: IDTI) designs and makes many chipset solutions for communications, computing, consumer, automotive and industrial components. While Landis named it as potential buyout bait, this is a company that has been speculated as takeout target quite literally for years — even in the 1990s. Its current market cap is $3.1 billion.

IDT’s earnings reported early in May showed that its fourth-quarter revenue was up 6.6% to $189.4 million, and fiscal year revenue was up 21.7% at $697.4 million. Greg Waters, president and chief executive officer of IDT, said:

We concluded fiscal year 2016 with fourth quarter revenue of $189.4 million, our 10th consecutive quarter of year-over-year revenue growth. This strength in the quarter was driven by sales of communications infrastructure products, automotive and industrial products, and wireless power products. The acquisition of ZMDI is already yielding tremendous benefits to IDT and we remain on track with the integration, which should be completed by December of this year.

Full year fiscal 2016 revenue grew by over 21 percent to reach $697 million, and was driven by sales of our wireless power products, and High Performance Computing/Data Center products. We remain very focused on operational excellence and achieving our target operating model which includes 30 percent operating margin and 30 percent annual free cash flow. We are well-positioned to continue outgrowing the semiconductor market overall, and to deliver best-in-class profitability and earnings power.

Shares of IDT were recently trading at $23.38, with a consensus analyst price target of $27.70 and a 52-week trading range of $14.50 to $29.04.

InvenSense

InvenSense Inc. (NYSE: INVN) designs and makes sensor systems on a chip globally, and it has a $575 million market cap. Interestingly enough, in early May it reported that fourth-quarter revenue of $79.5 million was down 34% from its third quarter and down 20% from its fourth quarter of the prior fiscal year. Still, non-GAAP gross margin was 45% versus 44% from the prior quarter.

Behrooz Abdi, president and CEO of InvenSense, said at the quarter:

The fourth quarter was a solid quarter, capping off a productive year for InvenSense. Throughout fiscal 2016, we drove significant technology advancement in key use cases that are fueling sensor adoption today. These use cases can be applied across a variety of vertical markets and applications, which we believe will enable us to maximize our R&D investments and drive significant TAM expansion. Our market-leading solutions continued to gain traction in emerging Internet of Things (IoT) platforms such as drones, virtual and augmented reality, wearables, smart home, and industrial applications. We believe that the broad applicability of our portfolio positions us for continued diversification and growth in these exciting markets.

InvenSense shares were last seen trading at $6.15. The stock has a consensus price target of $7.92 and a 52-week range of $5.42 to $16.40.

MaxLinear

MaxLinear Inc. (NYSE: MXL) provides integrated radio-frequency (RF) and mixed-signal circuits for communications systems. These range from broadband and data center to major metro and long-haul transport network applications. With its $1.3 billion market cap, the company’s stock just hit a 52-week high that also looks like a post-IPO high from the past five years or so.

MaxLinear announced earnings at the start of May. MaxLinear’s first fiscal quarter of 2016 saw its revenue increase by 190% to $102.7 million, and its net income increased 505% to $19.1 million. The company also announced the acquisition of Broadcom’s wireless infrastructure backhaul business, and it also recently acquired wireless assets from Microsemi.

MaxLinear apparently is not waiting for an acquirer to buy it. The company is making strides on its own. Here is what Kishore Seendripu, MaxLinear’s chairman and CEO, said:

We remain encouraged by the progress we are making in expanding our strategic footprint into a range of infrastructure markets, as supported by our April 28, 2016 announcement of our acquisition of certain assets and the assumption of certain liabilities related to Microsemi Corporation’s Broadband Wireless Division, which was previously part of PMC-Sierra, Inc., and today’s announcement that we are acquiring Broadcom’s wireless infrastructure backhaul business. We continue to aggressively look for opportunities to accelerate the penetration of our leading analog and mixed-signal technology platform into the wireless infrastructure, data-center, metro and long-haul telecommunications, and cable infrastructure markets.

Shares of MaxLinear were trading at $20.63. The consensus price target is $22.83, and the 52-week range is $9.00 to $20.75.

Power Integrations

Power Integrations Inc. (NASDAQ: POWI) designs and makes analog and mixed-signal integrated circuits and other electronic components and circuitry that are used in high-voltage power conversion. Its market cap is $1.4 billion.

The company’s first-quarter results were reported at the end of April. Power Integrations said that revenues were up 3% to $85.3 million. Its non-GAAP earnings were $0.50 per share, compared with $0.58 in the prior quarter and $0.43 in the first quarter of 2015. Balu Balakrishnan, Power Integration’s president and CEO, said:

Revenues increased from a year ago, and we expect continued growth in the second quarter as demand for our InnoSwitch products continues to ramp in the mobile-device market. The broader InnoSwitch product cycle continues to take shape with the recent introductions of InnoSwitch-CE and the 900-volt InnoSwitch-EP, and we have a robust pipeline of innovative new products on the way that will further expand our addressable market.

Shares of Power Integrations were last seen at $49.25, with a consensus price target of $55.67 and a 52-week range of $36.04 to $52.99.

We hinted earlier about the massive waves of semiconductor consolidation that has taken place. There have been literally billions worth of consolidation in this space of late. Here are just some of the companies that have been gobbled up by larger chip companies over the past year or more:

• Freescale Semiconductor
• Integrated Silicon Solution
• Altera
• Atmel
• Broadcom (name changed from Avago back to Broadcom post-merger)
• EZchip Semiconductor
• Hutchinson Technology
• Mattson Technology
• OmniVision Technologies
• PMC-Sierra
• KLA-Tencor
• Fairchild Semiconductor
• SanDisk