Merger and acquisition activity in the global semiconductor industry is set to continue, with deals centered around the logic and analog subsectors, Moody's Investors Service says in a new report.

"We expect further acquisitions in the semiconductor industry as companies seek to enter or improve their positions in faster-growing end markets such as automotive, datacenters, mobile devices and products with embedded Internet connectivity," says Senior Vice President, Richard Lane. "But most acquisitions will be valued at less than $1 billion, which is more typical for the industry than the very large mergers announced so far this year."

Future deals will occur mainly in the logic and analog subsectors, Lane says in "Further M&A Likely in Logic, Analog; Equity Prices May Affect Funding Mix." The logic subsector accounts for 55% of total semiconductor industry revenue, and the analog subsector for 15%. Logic and analog companies will be looking for opportunities to broaden their scale, expand their product breadth and better integrate chip functionality, as well as to extend their market reach.

Moody's believes that among semiconductor equipment firms, the only potential large combination left, though unlikely, might be between Lam Research Corp. (Nasdaq: LRCX) and KLA-Tencor Corp. (Nasdaq: KLAC), while US regulators' antitrust concerns contributed to the cancellation of Applied Materials Inc.'s (Nasdaq: AMAT) acquisition of Tokyo Electron Ltd.

The credit implications of deals for would-be acquirers will depend partly on the direction of equity prices.

"Avago's acquisition of Broadcom and NXP's purchase of Freescale Semiconductor are credit positive for the acquirers in part because they include a significant equity component as companies take advantage of the run-up in share prices," says Vice President -- Senior Analyst, Terry Dennehy. "But if a downturn in the equity market were to lead to greater use of debt to fund the acquisitions, the purchasers' credit metrics could come under pressure."

Moody's research subscribers can access this report at

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1006365.