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Skyworks Eyes EV, 5G Markets With $2.75B Deal for Silicon Labs Units

Skyworks aims to diversify its revenue stream and speed its expansion into EV and 5G telecom markets with its proposed deal for units of Silicon Labs.

Skyworks  (SWKS) - Get Skyworks Solutions, Inc. Report said it agreed to acquire Silicon Laboratories'  (SLAB) - Get Silicon Laboratories Inc. Report infrastructure and automotive business for $2.75 billion cash.

The acquisition includes Silicon Labs' power isolation, timing, and broadcast products and technology, "which are highly complementary to Skyworks' connectivity portfolio," Skyworks said.

Analysts lauded the deal, Bloomberg reported, as a way for Skyworks to diversify its revenue stream. The news-and-data service estimates that based on supply-chain data, the company gets about 70% of its revenue from Apple.  (AAPL) - Get Apple Inc. Report

At last check Skyworks shares were trading 4.5% higher at $191.75. 

Silicon Labs, Austin, said it would return about $2 billion of the deal's proceeds to shareholders through stock buybacks and special dividends.

Silicon Labs shares leaped 12% to $162.25. 

The new businesses will speed Skyworks's expansion into markets such as electric and hybrid vehicles, 5G wireless infrastructure, and data centers, the Irvine, Calif., semiconductor maker said.

Strong Demand Driven by 5G Transition Boosts Skyworks' Results

“By leveraging our global sales channels, operational scale, and deep customer relationships, Skyworks is well positioned to drive above-market growth, while diversifying revenues, expanding margins, and delivering strong returns in earnings and cash generation,” Skyworks Chief Executive Liam Griffin said.

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The infrastructure and automotive business brought in revenue of about $375 million in 2020 and is on track to hit $400 million this year, Skyworks Chief Financial Officer Kris Sennesael said, quoted by Dow Jones.

Silicon Labs' senior vice president and general manager of the infrastructure and automotive unit, Mark Thompson, will join Skyworks as part of the deal. He will report to Griffin.

An additional 350 Silicon Labs employees, including the senior managers of the acquired businesses, are also set to join Skyworks.

Among the analysts quoted by Bloomberg, Raymond James and BMO note that the deal will immediately add to Skyworks' earnings. 

Raymond James said the deal "isn't inexpensive" while BMO said Skyworks is paying "a reasonable multiple." Both rate Skyworks outperform.

Morgan Stanley, with a more conservative equal-weight rating on the stock, said the deal should be a positive for both companies.

The boards of Skyworks and Silicon Labs have approved the terms of the deal. They expect to close the deal during the calendar third quarter, subject to conditions including regulatory clearances.

Skyworks Beats Earnings Estimates for Fiscal Q4

Skyworks expects to fund the transaction with a combination of cash on hand and committed debt financing arranged by JPMorgan Chase.