Apple Chip Supplier Avago Is Not Selling -- Don't Believe the Hype

NEW YORK (TheStreet) -- Consolidation seems to be the new strategy among the semiconductor companies. It makes sense given how companies with tons of cash and little growth can immediately look revived with one key deal. But selling or buying just for the sake of a deal makes no sense, especially when growth of the target company has been no issue.

If you believe the rumors, Avago Technologies (AVGO) is shopping itself around. Investors and traders pounced on the noise, sending Avago stock up more than 4%, before settling with a 3% gain at $126.94. Even more surprising, shares of the three companies Avago is reportedly speaking to about a deal also spiked by an average of almost 4%.

We've seen this happen before. Investors get suckered into a situation of "buy the rumor, sell the news" -- only to be left with no more buyers when the news turns out to be a dud. In that case, it's all hype. Avago, headquartered in Singapore, doesn't need a deal. The company has quickly built itself into one of the premier wireless technology specialists on the market, growing earnings and revenue in 2014 at rates of 52% and 70%, respectively.

Avago supplies chips to Apple (AAPL) for iPhones and iPads. Apple accounts for more than 10% of Avago's annual sales, meaning, as Apple goes so does Avago. And with Apple crushing iPhone unit sale estimates in two consecutive quarters, Avago, whose shares are up more than 26% year to date, has latched on to the right coattail. Not to mention, analysts expect Apple to maintain its momentum throughout 2015, boding well for Avago stock.

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