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Analysis: Impact of TI-National Semi deal

Posted: 08 Apr 2011     Print Version  Bookmark and Share

Keywords:TI-National Semi deal  merger  acquisitions  analysis 

Texas Instruments Inc. and National Semiconductor Corp. sign a definitive merger agreement on April 4 for TI to acquire National for Rs.29,562.59 crore ($6.5 billion) in cash. See TI acquires National Semi, grows analogue portfolio.

The news has created much buzz on the industry and here's what analysts are saying about the deal:

Craig Berger, an analyst with FBR, said: ''We think this deal makes sense, with TI the only likely bidder and the best strategic fit for National. The Rs.29,562.59 crore ($6.5B) purchase price (is) not inexpensive considering National's growth rate, but likely not that expensive either considering the manufacturing synergies and cost reductions that TI is likely to achieve in coming years.

Craig Berger

Indeed, TI is now an even bigger analogue competitor than before with TI and National combining to claim about 18 per cent global analogue market share, meaningfully ahead of closest peers Analog Devices (6 per cent), Maxim (6 per cent), Linear Technology (4 per cent), and Intersil (4 per cent).

One main motivation for this deal is that it adds about 12,000 new parts to TI's analogue product stable. While TI said that it is likely to keep using National's 150mm and 200mm fabs given their mid-60 per cent utilisation rates and low manufacturing costs, we believe a real cost opportunity exists for TI to slowly move National's production out of those facilities and into TI's 300mm facilities.''

Bobby Burleson, an analyst with Canaccord Genuity, said: ''We continue to rate TI shares 'HOLD' given our view that investors are likely to gravitate towards product cycle stories at this point in the semiconductor cycle. Product overlap is minimal as TI's analogue portfolio focuses primarily on the communications and computing markets (64 per cent of 2010 revenue) and industrial is the largest market for National (46 per cent of 2010 revenue). Following the completion of the acquisition, analogue will account for almost 50 per cent of TI revenue.

Management would like to reverse share loss seen recently for certain National product areas (wireless) and deliver growth for the company's product commensurate to its own goal of two times the rate of the industry. TI also expects to benefit from National's manufacturing operations, which are running at approximately 60 per cent utilisation.''

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