• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Technology

3 Types of Chip Industry Firms That Could Be M&A Targets Going Forward

Analog chip suppliers, optical component firms and chip equipment makers could be among the firms that see M&A interest if trade tensions continue to ease.
By ERIC JHONSA
Jul 9, 2019 Updated Jul 09, 2019 | 08:31 AM EDT
Stocks quotes in this article: AMBA, SLAB, ON, MXIM, POWI, MTSI, MXL, KLAC, AMAT, NANO, ICHR, UCTT, ENTG, KLIC, LITE, AAOI, IPHI, NPTN, ACIA, CSCO

With trade tensions -- and with them, worries about Chinese regulatory opposition to U.S. M&A transactions -- having cooled a bit lately, the stage might be set for additional chip industry consolidation. And indeed, on Tuesday morning, Cisco (CSCO) announced it had agreed to purchase optical component/module firm Acacia Communications (ACIA) for $2.6 billion.  

In an interesting report released over the weekend, KeyBanc Capital made the case that efforts by larger chip industry firms to grow their scale and customer bases will drive additional consolidation, as will their wish to be better-exposed to growing IoT, automotive and cloud end-markets. The firm declared vision processor supplier Ambarella (AMBA)  and (though its steep earnings multiples are a possible deterrent) highly diversified Silicon Labs (SLAB)  to be the firms in its coverage universe most likely to be targeted by bigger players.

Here are three types of chip industry firms that could see fresh M&A activity in the coming months.

1. Analog and Mixed-Signal Chip Suppliers

This is a field that has seen a lot of consolidation already, but which is still pretty fragmented. Moreover, it still contains a number of smaller players with good exposure to IoT, automotive and/or cloud data center end-markets, and the fact that acquirers in the space generally have a good track record of making deals pay off with the help of cost synergies and better pricing power could also help fuel additional dealmaking.

Diversified suppliers of analog/mixed-signal chips and microcontrollers, such as ON Semiconductor (ON)  and Maxim Integrated (MXIM) , are potential targets, as are power management chip suppliers such as Monolithic Power Systems and Power Integrations (POWI) . Firms with strong exposure to telecom and networking end-markets, such as Macom Technology Solutions (MTSI) and MaxLinear (MXL) , could also conceivably receive bids.

2. Chip Equipment Firms

While a pair of mega-deals in this space have been blocked by U.S. regulators over the last few years, larger chip equipment firms still seem interested in expanding their product lines by acquiring smaller firms. In March, KLA-Tencor (KLAC) closed a $3.4 billion deal to buy Orbotech, an Israeli maker of chip, circuit board and display panel manufacturing equipment. And last week, Applied Materials (AMAT) announced it's buying Japanese peer Kokusai Electric for $2.2 billion.

Some smaller, publicly-traded, chip equipment suppliers: Rudolph Technologies, Nanometrics (NANO) , Ichor (ICHR) , Ultra Clean Holdings (UCTT) , Entegris (ENTG) and Kulicke & Soffa (KLIC) .

3. Optical Component and Module Makers

A major deal in this space -- II-VI's $3.2 billion deal to acquire leading optical component/module supplier Finisar -- is awaiting Chinese regulatory approval. If Chinese approval arrives, it wouldn't be surprising to see additional dealmaking happen.

There has been plenty of consolidation in the optical component market over the last decade, and there arguably still needs to be more, given the market's fragmentation and the pricing power wielded by the cloud giants and hardware OEMs that component vendors service. And in the wake of Cisco Systems' $660-million deal to buy optical component vendor Luxtera and its just-announced deal for Acacia, there could be another deal or two in which an OEM opens its checkbook to obtain technology assets.

The market's publicly-traded players include Lumentum ( LITE) , Applied Optoelectronics ( AAOI) , Inphi ( IPHI)  and NeoPhotonics  ( NPTN) .

This article has been updated to note Cisco Systems' $2.6 billion deal to buy Acacia Communications. Acacia was originally one one of the firms mentioned in the article's final paragraph.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
TAGS: Investing | Technology

More from Technology

Prepare to Go Long Intel If Support Develops

Bruce Kamich
Apr 23, 2021 8:50 AM EDT

Let's review the charts and indicators.

I Went From 'Why Do I Own AT&T?' to 'Wow, Am I Glad I Own AT&T'

Stephen Guilfoyle
Apr 22, 2021 11:28 AM EDT

This could be the last chance to add before the stock finally moves into its next technical phase.

Jim Cramer: Secular Growth Is What Lam Research Is All About

Jim Cramer
Apr 22, 2021 10:54 AM EDT

When you hear about chip shortage you need to think of Lam. The world needs Lam to add to capacity as fast as possible.

Marvell Technology Now Displays a Bullish Picture

Bruce Kamich
Apr 22, 2021 8:40 AM EDT

We are no longer standing aside.

Qualtrics International Sees Its Charts Greatly Improve

Bruce Kamich
Apr 22, 2021 7:52 AM EDT

The technical signals indicate a bit more aggressive buying of its shares of late.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 09:38 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    The Art of the Remount
  • 07:35 AM EDT BOB LANG

    Join Me for a Special Earth Day Webinar, Talking Volatility and VIX

    After the close Thursday join me for a free webina...
  • 04:17 PM EDT REAL MONEY

    Wednesday on Real Money Pro

    Get-rich quick schemes offer little more than pipe...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login