Avago Buys Broadcom; NXP Spins Off RF Power Unit

M&A activity heats up across semiconductor industry.

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Merger and acquisition activity continues to heat up across the semiconductor industry.

On one front, Avago Technologies continues on its acquisition spree. And on another front, NXP Semiconductors is moving to spin off its RF power business. And there are other deals in the works as well, including Intel’s proposed move to buy Altera.

What’s driving the wave of M&A activity? The semiconductor market is maturing amid lackluster growth in the arena. The IC market is projected to grow 5.9% in 2015, compared to 9.2% growth last year, according to VLSI Research.

In one blockbuster deal, meanwhile, Avago has entered into a definitive agreement to acquire Broadcom in a cash and stock transaction valued at $37 billion. Under the terms, the combined companies will adopt the name Broadcom Ltd. Hock Tan, president and chief executive of Avago, will continue to serve in the same role for the combined company.

Having bought LSI and other companies in recent times, Avago appears to be on the prowl for a new acquisition amid a slowdown in its core storage chip business. According to a Reuters report, it has made inquiries at Xilinx, Renesas and Maxim. Avago made a bid for Freescale earlier this year, but NXP ended up buying Freescale for $11.8 billion.

Meanwhile, with the proposed acquisition of Broadcom, Avago will expand its efforts in the wired and wireless communication semiconductor sectors. “Due to consternation over weakness in storage, which accounts for 30% of Avago’s revenue, we believe the acquisition of Broadcom would be timely and a strategic fit,” said John Vinh, an analyst with Pacific Crest Securities, in a research note. “(It would) allow Avago to continue to diversify away from mobile wireless by acquisition of Broadcom’s networking business.”

NXP Semiconductors, meanwhile, will sell its RF power business to Jianguang Asset Management Co. (JAC Capital) for $1.8 billion.

JAC, an asset management company based in China, will acquire the assets of NXP’s RF power business, including the entire management team and 2,000, all relevant patents and IP, and the packaging, test and assembly operation in the Philippines. The deal is expected to close in the second half of this year, pending approvals from regulatory agencies.

NXP said it expected a higher price, but sold the company because of JAC’s ability to both close the deal quickly and to continue growing the business, with potential new markets in industrial lighting, next-generation cooking, and auto ignition systems.

This isn’t the first deal that NXP has made with JAC. The two companies announced plans earlier this year to set up a joint venture in China with JAC, a state owned company. Under the terms of that deal, JAC would own 51%, while NXP would own 49%.

Other deals are also in the works. Intel and Altera have resumed talks on a possible deal in which Intel would buy the FPGA supplier, according to reports.

Meanwhile, Cypress Semiconductor has made a bid to buy U.S. memory maker Integrated Silicon Solution Inc. (ISSI). In fact, Cypress may have started a bidding war against a Chinese consortium to buy ISSI. In March, a Chinese consortium of investors led by Summitview Capital entered into a definitive merger agreement to acquire ISSI. The proposed transaction values ISSI’s equity at approximately $639.5 million. This week, Cypress proposed a counter offer for ISSI. Cypress also recently acquired Spansion.

And not to be outdone, various entities from China have bought IC makers. China’s Jiangsu Changjiang Electronics Technology (JCET) recently acquired STATS ChipPAC. And OmniVision Technologies has entered into a definitive agreement to be acquired by a consortium from China.

—Ed Sperling contributed this story