We are In the Middle of Semiconductor Merger 'Swell' - Analyst

Amid recent mergers and acquisition activity in the semiconductor space involving ADI (NYSE: ADI) and Hittite (Nasdaq: HITT), Synaptics (NASDAQ: SYNA) and Renasas, ON Semi (Nasdaq: ONNN) and Aptina and SanDisk (Nasdaq: SNDK) and Fusion-io (NYSE: FIO), Nomura Securities analyst Romit Shah believes we are in the middle stage of a powerful M&A swell.

Shah said an interesting theme among all these transactions (except of SNDK-FIO) is that none add revenue growth. It is all about EPS accretion. He also said M&A activity could likely remain high over the coming months, noting: rewarding the overwhelming majority of acquirers, debt is cheap (10-year yield is 2.6%), and foreign cash is funding deals.

"We believe that potential acquirers are looking at companies with prospects for improved operating expense leverage, strategic fit and valuation," he said. The analyst sees 15 acquisition candidates that fall into one of three buckets:

(1) sub-scale – Integrated Device Technology (NASDAQ: IDTI), Intersil Corp (NASDAQ: ISIL), M/A-Com Technology Solutions (NASDAQ: MTSI), Micrel, Inc. (NASDAQ: MCRL), Semtech Corp (NASDAQ: SMTC) and Silicon Laboratories, Inc. (NASDAQ: SLAB);

(2) strategic – Altera Corp (NASDAQ: ALTR), Applied Micro Circuits (NASDAQ: AMCC), Atmel Corp (NASDAQ: ATML), Broadcom (NASDAQ: BRCM), Cavium (NASDAQ: CAVM) and Monolithic Power Systems, Inc. (NASDAQ: MPWR), and

(3) undervalued – Diodes, Inc. (NASDAQ: DIOD), International Rectifier Corp. (NYSE: IRF), and Microsemi Corp (NASDAQ: MSCC).

The companies they view that are most likely to make an acquisition include Texas Instruments Inc. (NASDAQ: TXN), Maxim (NASDAQ: MXIM), NXPI (NASDAQ: NXPI), Skyworks (NASDAQ: SWKS) and Xilinx (NASDAQ: XLNX).

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