Sirf Tech's Slide Makes It a Takeover Target

SAN FRANCISCO -- Sirf Technology'sSIRF stock lost half of its value Tuesday, following an ugly quarterly report .

But the action may just be getting started.

It's no secret that GPS chips have been a hot commodity in recent months, with companies like BroadcomBRCM, NXP and AtherosATHR all making acquisitions in the sector.

And with Tuesday's selloff, Sirf, the No.1 independent GPS player, is more affordable than ever.

"It does put them in play more," says Craig Berger, an analyst at Friedman, Billings, Ramsey, who describes Sirf as the crown jewel of GPS chips.

Six weeks ago, Sirf had a roughly $1.5 billion market cap, making the firm a more expensive acquisition target than the slew of smaller, private GPS firms that exist, according to analysts.

With Tuesday's selloff though, Sirf's market value has now shrunk to $441 million. Whether that's cheap enough to draw a takeover bid remains to be seen.

Berger notes that potential buyers may hold out for even an even greater markdown. The increased competition in Sirf's market and the potential for further deterioration in its sales and earnings mean the stock could still see more downside.

"Somebody could look at Sirf and say, 'Wow it's $7.31, but if I wait three more months, I'll be able to bid for it starting at $5,'" says Berger.

On Wednesday, shares of Sirf were up 4 cents to $7.40.

GPS chips receive data from overhead satellites to pinpoint the geographic location of an electronic device. The most well-known market for GPS chips today are in the personal navigation devices made by companies like GarminGRMNand TomTom, which give motorists step-by-step driving directions.

But the sudden frenzy of interest in GPS chipmakers has more to do with cell phones. Broadcom and Qualcomm plan to integrate GPS into the cell phone's main chip, the baseband processor.

That means that any other company that makes baseband chips for cell phones also needs to provide GPS functionality in order to field an equivalent offering and maintain its average selling prices -- a recipe for an arms race.

In an interview with TheStreet.com in December following Atheros' $54 million acquisition of u-Nav, CFO Jack Lazar said he believed a couple buyers were likely still shopping around for the remaining standalone GPS chip firms, and he predicted a couple more deals in the sector.

The recent wave of GPS buyouts means the pool of buyers has gotten smaller. But there are still some players left, including MarvellMRVL, MediaTek and Freescale.

And Freescale, which makes cell phone baseband chips, is also looking to branch out into the personal navigation device market -- in moving to acquire SigmaTelSGTLfor $110 million on Monday, the company cited its hopes to provide the multimedia processing for personal navigation devices.

Most of these chipmakers are already likely to develop GPS technology in-house. But the race to get a product to market quickly, the pressure to keep internal development costs down and the potential to grab a better-performing product, means an acquisition can provide an attractive shortcut.

On the other hand, the widespread worries of an economic slowdown, as well as signs of weakening business conditions in the cell phone handset market in particular, are not conducive to merger and acquisition activity.

"You would think people would be a little more averse to risk today," says Marko Vucenovic, of FTN Midwest Securities.

And Sirf, which is entangled in patent litigation with Broadcom, carries some extra risk baggage in terms of intellectual property.

IntelINTCsigned a licensing deal with Sirf in July. Intel has said it expects that GPS will be one of the key wireless technologies at the heart of a new generation of so-called mobile Internet devices.