<<TI Cranks the Analog Volume
Fayad Abbasi
Jun 22 2000
Texas Instruments [TXN] announced yesterday that it will acquire Burr Brown [BBRC], a leader in analog semiconductors. Once again, TI has shown it is committed to owning the hardware that makes mobile devices work. While we feel the price was a bit steep, we continue to rank TI a strong buy and a key holding in any technology portfolio.
With TI, Burr Brown will be able to expand its sales through a stronger distribution channel and cutting-edge production technology. Since the competition in the digital signal processor (DSP) market has focused on the DSP chip itself, TI has looked to dominate the analog interface and create a strategically defensible position. Folks, this is the kind of stuff they teach you in business school: how to create and sustain a competitive advantage.
There are four essential analog components of a cellular phone: power management, data converter, amplifier, and interface. With Burr Brown, TI becomes an immediate number two in data converters and number three in amplifiers. This conveniently ties in with TI's purchase last year of Power Trends, which bolstered its power management division.
It also will substantially increase its market share in analog. According to industry figures, TI had about 48 percent market share in DSP last year--clearly number one. It was also the top dog in analog but with only an 11 percent market share.
Based on yesterday?s close, the transaction is valued at more than$7bn, about a 50 percent premium over Burr Brown?s closing price. While we think the premium is a bit rich at $5m per employee, the deal will not impact earnings for 2000 and 2001, and, according to management, will be accretive beyond that.
Given TI?s rich market valuation, it can absorb this transaction. Bear in mind, too, that analog engineers are not readily available and lending defensive aspects to this acquisition. >> |
