TheStreet

Cypress Semiconductor (CY - Get Report)  is up more than 15% over the last two trading days after Bloomberg reported the company is exploring a sale and other strategic options after receiving buyout interest. The Philadelphia Semiconductor Index (SOXX - Get Report) , which has given back a healthy chunk of its 2019 gains this month due to trade war worries, has caught a slight bid following the report.

It wasn't exactly a shock to read that Cypress has seen takeover interest. Cypress has been the subject of M&A rumors for years; many of the company's microcontroller (MCU) rivals have been bought out over the last few years as the chip industry has aggressively consolidated; and with shares even now only trading for 14 times their expected 2020 EPS, its multiples aren't likely to cause sticker shock for a larger peer that sees room to make an acquisition with the help of cost cuts and cross-selling.

In addition, when I interviewed him in April, Cypress CEO Hassane El-Khoury suggested his company's Wi-Fi assets -- Cypress is a major supplier of Wi-Fi/Bluetooth connectivity chips for cars, home electronics and IoT devices -- could be attractive to a potential acquirer in light of ON Semiconductor's (ON - Get Report) recent $936 million deal to buy Wi-Fi chip supplier Quantenna Communications (QTNA) . Perhaps not coincidentally, Bloomberg's Wednesday report about Cypress arrived shortly after NXP Semiconductors (NXPI - Get Report) , the world's biggest MCU supplier, announced that it's buying Marvell Technology's (MRVL - Get Report) Wi-Fi/Bluetooth chip business for $1.76 billion, and that it expects to double the business' revenue by 2022.

It's also not hard to imagine Cypress' MCU business, which also has healthy automotive and IoT exposure, appealing to an acquirer. Cypress has been reporting strong design win momentum for its newer Traveo II automotive MCU family, and has also said it's working on products that feature both its MCU and wireless connectivity IP.

With all that said, the timing of Bloomberg's report is certainly interesting. The chip industry is still navigating a cyclical downturn, and (perhaps more importantly) escalating trade tensions and recent U.S. actions against Huawei have raised fresh worries about Chinese regulators refusing to approve chip M&A transactions involving U.S. companies, the way that they avoided approving Qualcomm's (QCOM - Get Report) $44 billion deal to buy NXP last year. Worries about Chinese approval appear to be a big reason why Mellanox Technologies (MLNX - Get Report)  currently trades 12% below the $125 per share buyout price it agreed to with Nvidia (NVDA - Get Report) in March.

In that context, a report that a U.S. chip developer with over $2 billion in annual sales has received buyout interest is somewhat encouraging. Though it's impossible to know just how many would-be buyers of chip assets are currently willing to brave the M&A waters in the face of trade and regulatory uncertainty, there still seems to be a lot of interest among large-cap chip companies in making purchases that put them on better strategic footing and/or can be highly accretive with the help of cost synergies.

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