It didn't get the chatter that the "Pfizer (PFE) to buy Medivation (MDVN) " deal got this morning, but the talks by a Japanese company to buy U.S. semiconductor company Intersil (ISIL) for $3 billion, a huge premium to its valuation last week, is a reminder that the real M&A hot spot isn't biotech. It's semiconductors.
We don't know if the Intersil deal, which is in its formative stages, will come to pass, but the tentative bid from an outfit called Renesas comes after a long line of other deals, including Softbank to buy Arm Holdings (ARMH) and the recent Analog Devices (ADI) purchase of Linear Tech (LLTC) , both at a giant premium.
We've known for years that there are way too many semiconductor firms out there, something that the acquisitive Avago (AVGO) -- now Broadcom -- and NXP Semi (NXPI) have known ever since Avago outright bought Broadcom and NXP purchased Freescale. Both acquisitions have freed these two companies from being known as just cellphone suppliers to be primary plays in communications and the Internet of Things, respectively, particularly, when it comes to NXP, the brains behind a lot of the fancy stuff in newer car models. (NXP Semi is part of TheStreet's Action Alerts PLUS portfolio.)
I know everyone was playing the who's-next game in bio, but I think the chip stocks offer a more fertile hunting ground.
What looks ripe? First, there's Marvell Technology (MRVL) , which is chaired by none other than Rick Hill, who brought shareholders of Novellus so much worth in its sale to Lam (LRCX) . Marvell had been in the doghouse for some accounting issues that are now safely put behind them. I think this supplier of key products to hard-drive makers Seagate (STX) and Western Digital (WDC) , as well as integrated circuits for networking and communications, could be a logical takeout and a nice premium to current prices. I've always liked the company's niche but had been hesitant to speak positively about any company with accounting issues because, as always, accounting irregularities equal sell. But now that they are behind this company, it's a buy even as it hit its 52-week high today.
I'm intrigued by Maxim Integrated (MXIM) , a supplier of analog chips to Samsung. This one seems like a natural for Texas Instruments (TXN) , which last feasted off National Semi in a legendarily positive deal. I thought Analog Devices might have been interested in this one before it pulled the trigger on Linear, but no such luck.
We keep hearing that Xilinx (XLNX) is for sale and even though its stock is at its 52-week high, the company's leverage to advanced driver assistance for automobiles makes it a nifty target. Its outsized exposure to defense, namely the Joint Strike Fighter, also makes it a nice acquisition for any company trying to de-lever cellphone exposure. Remember, Intel (INTC) bought competitor Altera at a huge premium, so I am not frightened by the Xilinx sticker price north of $17 billion, what I estimate it would cost to buy the company.
Finally, while I hesitate to say it, because I am worried about the state of current business, someone should snap up Cypress Semi (CY) now that founder T.J. Rodgers has moved on. I have always respected the book of business Cypress has built for the Internet of Things, including integrated circuits for data and telecommunications. Cypress, with its almost 4% yield, is paying you to wait even though its merger with a similar chip maker, Spansion, took this $11 stock up to $15 last year. A Rodgers-less Cypress is, to me, a Cypress that could very well be for sale.
Now, I do not recommend stocks on a takeover basis unless the fundamentals are good. But it does happen that all of these companies are doing relatively well, maybe not as well as Arm Holdings was, but certainly as well as Linear or Freescale and Broadcom were when they were acquired. Therefore, I am freeing you to speculate on any and all. There's too much takeover activity for someone willing to put on these decent-risk, high-reward semis.
