Amid a number of announcements streaming out of Mobile World Congress, we've got a merger-Monday event when it comes to this sector's food chain in.
This morning, RF Micro Devices (RFMD) and TriQuint Semiconductor (TQNT) announced that their respective boards of directors had unanimously approved an all-stock transaction to combine the two companies. The merger is expected to complete in the second half of 2014 and, assuming it goes through, former shareholders of RF Micro and TriQuint will ultimately own approximately 50% apiece of the new $2 billion revenue company.
This combination puts together potent product portfolios: power amplifiers, power management integrated circuits, antenna control solutions, switch-based products and premium filters. These products have enabled RF and TriQuint to win customers such as Nokia (NOK), Samsung, Apple (AAPL) and others in the mobile phone, smartphone and tablet spaces. In many respects, a deal like this had to happen -- and, before too long, I suspect the remaining stand-alone companies will face an even tougher road ahead.
While there will be some product and customer overlap, the transaction is a positive for both companies given the improved scale and scope of the combined product portfolio and customer reach. One additional positive is the purchasing power to be had by combining TriQuint's gallium arsenide manufacturing capacity -- which includes merchant fabrication operations -- with that of RF Micro. That is not good for such companies as IQE.
Some might think the new company will compete with Broadcom (BRCM) or Qualcomm (QCOM), or even Intel's (INTC) mobile efforts. However, the reality is that the competition for the combined TriQuint-RF will lie in such companies as Skyworks Solutions (SWKS) and Avago Technologies (AVGO). Broadcom, Qualcomm, Intel or even Mediatek may in fact look to work with more integrated solutions coming out of the new TriQuint-RF. In this way, they might gain pricing leverage in exchange for model-socket wins.
Over time we'll find out whether the combined company will adopt a market-share-focused strategy or one focused on margins. If it turns out to be the former -- and again we won't know for a while yet -- it could have margin-related implications at Skyworks, Avago and similar competitors.
One of the questions investors need to contemplate is what this merger means for the likes of Anadigics (ANAD) and Peregrine Semiconductor (PSMI). Even though Anadigics shares are up in early trading today, that strength will likely prove to be short-lived. The concern with these two companies is they will be left further behind as the mobile industry shifts toward more integrated solutions that offer space and power savings, both of which are crucial. With regard to Peregrine, we haven't heard much about Qualcomm's CMOS PA dubbed RF360 in some time, but any traction there is likely to limit Peregrine's success in the smartphone and tablet markets.