Another Round of Chip-Industry Deals Is Coming: Cowen Analyst

NEW YORK ( The Deal) -- Cypress Semiconductor's ( CY) pursuit of Integrated Silicon Solution ( ISSI) reflects the frenetic state of activity in semiconductors. In a little more than three months, a handful of deals have totaled more than $70 billion.

After initially balking at proposal from Intel (INTC), Altera (ALTR) consented to a $16.7 billion sale in early June, under pressure from TIG Advisors. Avago Technologies (AVGO) said in May it would pay $37 billion for Broadcom (BRCM), and in March, NXP Semiconductors (NXP) said it agreed to buy Austin, Texas-based Freescale Semiconductor (FSL) for $16.7 billion.

If Cypress finally wins over Integrated Silicon with its latest $675 million offer, it would not likely be the last deal in the consolidating chip industry.

Tim Arcuri of Cowen and Co. suggests that the next round of chip transactions could include Cavium (CAVM), Marvell Technology Group (MRVL), Maxim Integrated Products (MXIM) and Skyworks Solutions (SWKS).

"Interest rates are still low but about to rise, there is a land grab which increases the urgency to do something or be left in the cold, and the market is putting a very high multiple on the earnings accretion from these deals," Acuri wrote in an email. "It makes for a very frothy M&A environment not so much in terms of [the number] of deals, more in terms of the SIZE of deals."

For Marvell, Arcuri suggests that a spin-out of its mobile unit into a joint venture with Chinese control is more likely than a sale of the entire company. With an estimated $500 million in revenue per year, the mobile business could be worth $1.25 billion, Arcuri said. Valuations in Tsinghua Unigroup's $1.78 billion purchase of Spreadtrum Communications Inc. in 2013 and Intel's purchase of a RMB 9 billion ($1.5 billion) stake in Tsinghua in 2014 suggest that Marvell's mobile business could be worth substantially more. Marvell did not respond to queries.

Maxim, with a market capitalization of $9.7 billion, could be attractive to Texas Instruments (TXN), Arcuri suggested. Maxim and Texas Instruments declined to comment on the possibility.

Qualcomm (QCOM) could take an interest in Skyworks, which has a market cap exceeding $20 billion, or in Cavium, with a $4.2 billion equity value, the analyst suggested.

Skyworks' radio-frequency chips would benefit Qualcomm, Arcuri wrote. Cavium would increase exposure to data centers, he noted, an area where Qualcomm is "very lacking." Skyworks and Qualcomm did not respond to queries. Cavium declined to comment.

Qualcomm has been under pressure from Jana Partners recently. The shareholder has pushed the company to make diverse changes, from altering management compensation to breaking apart its chip-making and tech-licensing businesses.

The latest semiconductor merger-and-acquisition activity bucks Moore's law, in which Intel co-founder Gordon Moore observed that the power of computer hardware grows quickly while cost falls steadily and substantially. Chip M&A has shown a clear boost in speed. As the massive acquisition prices reflect and Cypress' sweetened offer for Integrated Silicon shows, the cost of semiconductor companies is not going down.

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