• 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

Palantir Technologies Looks Toppy and Further Declines Are Possible

Bruce Kamich
Jan 21, 2021 11:06 AM EST

Stand aside from the long side.

Tech Gives Push to Market's Rotation

James "Rev Shark" DePorre
Jan 20, 2021 4:49 PM EST

Money moved back into big-cap technology names, thanks to strong positive reactions to earnings from Netflix.

Netflix's Post-Earnings Surge Might Bode Well for Microsoft, Facebook and Amazon

Eric Jhonsa
Jan 20, 2021 2:40 PM EST

The streaming giant's numbers and commentary were arguably just good, rather than amazing. But with its stock having underperformed for months, that's all that markets needed.

Nano Dimension's Cash Raising Could Lead to Some Intriguing Scenarios

Timothy Collins
Jan 19, 2021 12:15 PM EST

In four months, NNDM will have raised $1 billion in cash.

Cybersecurity Stocks that Lagged in 2020 Could Get Boost from SolarWinds Hack

Eric Jhonsa
Jan 16, 2021 8:00 AM EST

The hack stands to drive an uptick in corporate and government spending to protect both on-premise and cloud assets.

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

  • 11:16 AM EST CHRIS VERSACE

    Worst Stocks to Buy for the Biden Presidency

    Biden's take on the minimum wage, likely moves on ...
  • 08:35 AM EST GARY BERMAN

    Thursday Morning Fibocall for 1/21/2021

    SPX (Long-Term View) The 1/20/21 NEW high @ 3859...
  • 11:38 AM EST CHRIS VERSACE

    Best Stocks to Buy for the Biden Presidency

    President-elect Biden's massive stimulus plan, int...
  • 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