Arranged Marriage May Be Next for Freescale

Together, Freescale and NXP would most likely be among the top five.

That's the model that Mitsubishi Electric and Hitachi may have had in mind when they combined their chip businesses in 2003 to form Renesas Technology.

"Instead of two companies ranked somewhere between 5 and 15 every year, [Renesas is] now one that's ranked consistently at number 5 because it's so huge," says Brian Matas, VP of market research at IC Insights.

What's more, Freescale and NXP have a history of working together, through the so-called Crolles alliance, named after the French town where it is based. The alliance is essentially a chip-fabrication and development facility operated by the two companies, along with a third partner, ST Microelectronics(STM Quote).

That kind of collaborative history could ease the strains of blending two companies with different cultures and countries of origin.

Of course, private equity firms being private equity firms, some people on the Street say that slicing and dicing is inevitable if the two companies are brought together.

"Does it make sense to put the two together? Yes. But it's not one conglomerate, I think it will be two entities," says Satya Chillara, an analyst with Pacific Growth Equities.

Wireless, the highest-growth business that the two are involved in, represents the most obvious candidate for a spinoff, says Chillara. The balance of the business, automotive and networking chips, could go in another bucket.

According to Chillara, private equity firms could take the resulting new wireless-focused company public or look to sell it to another chipmaker.

Freescale is still a long way from being bought, though. And with the company's shares setting a new 52-week high, the company is getting more expensive every day.