By Therese Poletti
SAN FRANCISCO, March 25 (Reuters) - The $126 billion
semiconductor industry is ripe for a wave of mergers after
suffering its longest running slump, with this year's deals
likely to set a record, analysts and investment bankers say.
Already this year, Intel Corp. <INTC.O> has announced the
industry's biggest deal ever, the $2.2 billion acquisition of
networking chip maker Level One Communications Inc. <LEVL.O>.
"We are in the beginning stages of a consolidation in the
semiconductor space," said John Marren, a managing director at
Morgan Stanley Dean Witter in Menlo Park, Calif.
By itself the Intel deal -- the largest in its 31-year
history -- would take the industry more than a third of the way
toward last year's record merger total.
Last year was a banner year for industry mergers, with 71
deals in 1998 valued at a total of $5.9 billion versus 44 deals
in 1997 valued at $3.3 billion, according to figures compiled
by Broadview Associates of Fort Lee, N.J.
Many semiconductor companies are looking to mergers to
compete in high-growth areas such as wireless, communications
and networking, or to add manufacturing without plunking down
the $1 billion in cash needed to build a new chip factory.
"Scale becomes first and foremost, and if you are going to
be a manufacturer of chips, you need to have scale or critical
mass to compete with the big guys," Marren said.
The ever-increasing popularity of wireless phones, personal
digital assistants and other gadgets will make the networking
and communications industries two of the hottest areas for
deals, analysts say. This year, a slew of deals are in the
works already, many focusing on these high growth areas.
Indeed, VLSI Technology Inc., <VLSI.O> already is the
target of a hostile $777 million takeover offer from Dutch
electronics giant Philips Electronics <PHG.AS>.
San Jose, Calif.-based VLSI, which makes chips for wireless
communications and computer networking, is likely to be bought
by either Philips or another company looking to enter the
fast-growing wireless market.
Among other deals, Applied Micro Circuits Corp. <AMCC.O> of
San Diego, Calif., moved this month to expand its market for
high-speed communications products when it said it would buy
Cimaron Communications Corp. for $115 million in stock.
Last month LSI Logic Corp. <LSI.N> agreed to buy Fremont,
Calif.-based SEEQ Technology <SEEQ.O> in a stock swap valued at
$100 million. Milpitas, Calif.-based LSI hopes to add a layer
of fast networking technology to its specialty chips.
Long-struggling Cypress Semiconductor Corp. <CY.N> of San
Jose said in January it would buy IC Works Inc. in a $100
million stock deal to expand into the wireless market and
reduce its dependence on the highly cyclical memory business.
"There will be more consolidation within the industry,"
said Charles Glavin, a CS First Boston analyst. He said he was
not surprised by the hefty 80 percent premium Intel paid for
Level One but was a bit taken aback that such a high premium
came so early in the consolidation cycle.
"We thought this kind of premium would be paid later in the
cycle," Glavin said.
Analysts said a few networking and high-speed
communications takeover candidates include Galileo Technology
Ltd. <GALTF.O> and possibly Irvine, Calif.-based Broadcom Corp.
<BRCM.O>, which is making some acquisitions of its own.
In January Broadcom, a networking chip maker, announced a
deal to buy Maverick Networks, a developer of chips for network
switching equipment, in a stock deal worth about $100 million.
Mergers also are heating up in the downtrodden $22 billion
semiconductor equipment industry, which makes the million
dollar equipment used by chip makers around the world.
Chip equipment firms are slowly turning around, with
forecasts that revenues will be flat this year after dropping
last year. The industry sl... |
