TI's Burr-Brown acquisition makes waves in
analog-IC market
By Darrell Dunn
Electronic Buyers' News
(06/23/00, 06:43:56 PM EDT)
DALLAS -- The largest acquisition in the history of the semiconductor industry
has turned the spotlight on the analog-IC market, leaving competitors and
observers to contemplate the wake left by Texas Instruments Inc.
By engaging in a $7.6 billion stock deal to acquire Burr-Brown Corp., TI not only
set a high-water mark for mergers in the sector, it may also have opened an
acquisition floodgate in one of the most diverse markets in the semiconductor
field.
"Five years ago, you could have bought TI for $7.6 billion," said Will Strauss, an
analyst at Forward Concepts Co. of Tempe, Ariz. "Valuations have gone out of
sight."
TI managed to wrestle away the lead in the highly fragmented analog market from
STMicroelectronics in 1999. The move to add Burr-Brown will broaden its portfolio
to include high-performance converters and amplifiers. Burr-Brown's anticipated
2000 revenue of $400 million, however, is expected to add only modestly to TI's
overall percentage lead in the analog market.
"Analog is unique in the industry," said Mark Edelstone, an analyst at Morgan
Stanley Dean Witter & Co. in San Francisco. "If you look at DRAMs, SRAMs,
flash, processors, ASICs, PLDs, you name it, the top 10 guys in every segment
control 90% or more of the market. In analog, which accounts for about 15% to
20% of the total semiconductor industry, the top 10 own only 55% of the market."
With analog components in increasing demand by fast-growing communications
markets such as cellular handsets, the market segment is showing
unprecedented growth. A push for mergers and acquisitions is sure to follow,
analysts said.
The Burr-Brown acquisition, expected to be completed in the third quarter, is
already the third analog-related acquisition for TI in the past year. In October, it
acquired Unitrode Corp., a power-management specialist, for $1.2 billion, and in
November it picked up Power Trends Inc., a power-supply manufacturer, for $145
million.
"For the longest time the analog market had been very stable," said Brian Matas,
an analyst at IC Insights Inc. in Scottsdale, Ariz. However, a comparison of the
first quarter of this year with the same period in 1999 shows that in dollar terms,
voltage regulators are up 88%, telecom-specific analog devices 71%, interfaces
62%, and amplifiers 61%, Matas said.
"In comparison, from 1994 to 1999 the average growth rate in those markets was
between 10% and 15%. Suddenly, the market has exploded, and that's part of the
justification for what TI paid," he said.
Possible acquisition targets were hotly debated following TI's announcement, as
leading analog competitors such as Infineon, ON Semiconductor Philips, and
STMicroelectronics may feel pressure to spur their market momentum.
Second-tier analog companies with annual revenues between $500 million and
$1.5 billion-such as Analog Devices, Linear Technology, and Maxim Integrated
Products-were identified as potentially ripe for a takeover.
"If TI pays $7.6 billion for $400 million in sales, it sort of establishes the value of
advanced analog," said Robert Swanson, chairman and chief executive of Linear in
Milpitas, Calif.
"If somebody wants to offer us $50 billion or $60 billion, we're for sale," Swanson
said. "In truth, this is a vindication of what we've been doing. Analog has gone
from 'who cares' to all of a sudden it's strategically important and people are
talking about the need for acquisition."
It's evident that if Intel is going to be successful in the DSP market, where it has
formed a joint alliance with Analog Devices, it will have to expand its capabilities
in data conversion, Forward Concepts' Strauss said.
"My shock a year ago [when the DSP alliance was announced] was that Intel just
didn't announce they would buy Analog Devices," Strauss said. "I think today the
price would be pretty steep."
A spokesman for Analog Devices Inc. in Norwood, Mass., declined to speculate
about a potential acquisition, but said TI's purchase of Burr-Brown will not
undermine its position in the data-converter market.
"It reaffirms the importance of having high-performance analog, which TI really
hasn't had," the spokesman said. "We have leading market share in most of the
product segments Burr-Brown has been in. We're very comfortable with our
strategy.... Long term, it's always a challenge acquiring a company and we'll have
to see how well it works for TI."
The acquisition "shows that TI is as serious about analog as it is about DSP,"
said Alun Roberts, market director of advanced analog products at TI. "We're the
volume market leader in analog, and we've been challenged in the past on whether
people thought we were seriously a performance leader. I think with Unitrode last
year, and Burr-Brown, that puts that one to rest."
TI has a quarterly revenue run rate of about $800 million in analog products,
Roberts said. Burr-Brown can add another $100 million, allowing TI to quickly hit a
$1 billion quarterly revenue mark. The high-performance converters and precision
amplifiers in Burr-Brown's portfolio will allow TI to further improve its DSP attach
rate, a measurement of how many TI analog products are used alongside each
DSP the company sells.
The acquisition would also soak up one of the most durable companies in the
history of the semiconductor industry. Formed in 1956, Burr-Brown has been a
consistent, if somewhat small and slow-growing factor in the analog market.
Under terms of the agreement, Burr-Brown will become part of TI's catalog analog
organization.
Syrus Madavi, Burr-Brown's chairman, president, and chief executive, said there
are "compelling synergies" between it and TI. "The makers of Internet appliances
and communications systems will have the best of both worlds in one company,
with complementary components to optimally meet their total signal-processing
requirements," Madavi said.
TI plans to issue 1.3 shares of its common stock for each outstanding share of
Burr-Brown. The acquisition is contingent on approval by Burr-Brown stockholders
and antitrust review. |
