Costly Chip Consolidation Continues; NXPI Experiences 'Deal Fatigue' - ICYMI

The chip market is forever changing and forever evolving. So much so that oftentimes acquirers are willing to pay up to get a chunk of a new market or access to new development opportunities. Japanese chipmaker Renesas will pay about 60 times the operating profit for the 12 months ended April 30 for U.S. rival Integrated Device Technology (IDTI) . While the company and analysts touted IDT's ability to beef up Renesas' presence in the communications world, some questioned the ability of the buyer to integrate -- no pun intended -- its latest target. Paul Whitfield notes that the agreement comes almost exactly two years after Renesas agreed to pay $3.2 billion for another analog chipmaker, Intersil Corp. The Japanese company's limited success in eking synergies from that deal, which closed in February 2017, raises questions about claimed synergies from its new acquisition, Goldman Sachs analysts have warned. But at least, they're moving forward, right? It's not a crazy multiple for the chip industry, but for a company that doesn't produce chips specifically used in the fast-growing world of autonomous driving, it does seem a bit high. When Intel (INTC) acquired autonomous driving chipmaker MobilEye for $14.7 billion, it shelled about 117 times Ebitda. Wow.

As the chip sector consolidates, NXP Semiconductor (NXPI) does not plan to make a bid splash from a deal perspective. The Dutch semiconductor company is moving on from its failed merger with Qualcomm (QCOM) and CEO Rick Clemmer said NXP will likely pursue modest deals such as its purchase of automotive Ethernet technology company OmniPhy announced earlier in September. "In the near term we're going to be in a pause mode, other than tuck ins," he said. With the regulatory environment and "deal fatigue" at NXP, acquisitions along the lines of its $12 billion purchase of Freescale Semiconductor in late 2015 are not likely. Still, that's not to say there aren't targets out there for NXP or others, such as Renesas, which said it would be open to more deals after IDT. Microchip Technology (MCHP) , Quorvo (QRVO) , Cypress Semiconductor (CY) and Marvell Technology (MRVL) , operate in the analog and mixed-signal chip markets -- areas that are expected to remain rife with deal activity.

Markets Today: Stocks rose on Tuesday, Sept. 11, though investors remained concerned over developments in the ongoing trade war between Washington and Beijing, and separate trade talks with Canada. The Dow Jones Industrial Average rose 114 points, or 0.44%, to 25,971, the S&P 500 was up 0.37%, and the Nasdaq rose 0.61%. Apple (AAPL) rose 2.5% and Microsoft (MSFT) rallied 1.7%.

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