The M&A craze is driven by a search for growth as revenue growth declines and the job of making smaller, faster chips becomes increasingly complex.
Chipset maker Qualcomm is negotiating to acquire NXP Semiconductors for more than $30 billion, according to multiple press reports. The reports have driven NXP’s stock up about 15% to an estimated market capitalisation of about $33 billion.
If the deal goes ahead, it could become one of the largest in a historic period of consolidation in semiconductors. NXP itself completed in December its merger with Freescale Semiconductors that it valued at $40 billion.
A combination of the two companies could vie with TSMC as the world’s third largest semiconductor company with annual revenues of nearly $27 billion, according to rankings by IC Insights. They would still be significantly below #2 ranked Samsung at about $40 billion.
The deal would propel Qualcomm into the embedded and automotive markets where it is seeking inroads amid declining growth in its core smartphone market. NXP was named the largest chip supplier to car makers in an analyst report that said it had a 14.2% share of the $27.4 billion automotive semiconductor market in 2015.
One financial analyst spoke in upbeat terms about the deal’s potential but noted it would create “considerable integration/execution risks,” in a noted quoted in a report from the Wall Street Journal.
Neither NXP nor Qualcomm responded immediately to requests for information about the reports.
The maturing chip industry racked up more than $100 billion in M&A deals last year and more than $50 billion so far this year. Softbank paid $32 billion for ARM in this year’s biggest deal to date. Last year, Avago bid $37 billion to acquire Broadcom in a deal that closed in March.
The M&A craze has been driven by a search for growth as revenue growth declines and the job of making smaller, faster chips becomes increasingly complex. One analyst recently reported he expects semiconductor revenues could fall next year for the third straight year.
The average valuation for semiconductor deals since 2014 has been at about 25 times P/E with an average price premium of about 30%, according to a brief note on the NXP/Qualcomm talks from Ross Seymore of Deutsche Bank.