Analog integrated circuits (ICs) maker Maxim Integrated Products Inc. (MXIM - Free Report) announced a definitive agreement to acquire a power management company, Volterra Semiconductor Corp. for a total value of $605 million, including Volterra's cash position of $155 million.
Maxim will pay $23 per share for Volterra, which represents a 55% premium to the latter’s closing share price on Aug 14, 2013. After the announcement, shares of Volterra and Maxim jumped 54.8% and 3.41%, respectively, over yesterday's closing price.The deal will be completed in early December subject to pending regulatory approvals.
Calif.-based Volterradevelops low-voltage power-management chips for the computing, storage, networking and consumer markets.For 2012, Volterra posted revenues of $168 million and net income of $22.8 million, representing year-over-year increasesof 11% and 8%, respectively.
Maximstated that the acquisition will strengthen its position in the enterprise and communications markets. The acquisition will also allow Maxim to develop and offer high-current power management solutions in the industry.
Currently, the demand for chips that provide greater operational efficiency and consume less power is rising due to increased adoption of mobile devices. Infact, a Databeans report states that power management is the largest and fastest-growing product segment in the analog market.
Also, a research report from HIS states that the power management IC market will grow 7.6% to $32.2 billion in 2013. The growth will be driven by strong demand for portable handheld devices, including mobile phones, consumer electronics equipment, hybrid and electrical vehicles, the smart grid and medical equipment.
As per a forecast by TechNavio, the global smartphone market will increase at a compound annual growth rate (CAGR) of 10% through 2016. Another research firm IDC forecasts that total smartphone shipments will reach 1.5 billion units in 2017, posting a CAGR of 16% over the next five years, which represents significant growth opportunity for Maxim. The acquisition therefore makes sense for Maxim. The company can expand in the fast-growing low-energy chip market and concentrate more on the smartphone market, which is expecting robust growth in the long term.
Maxim has already witnessed strength in the smartphone market, where it has secured a number of wins. Its chips are already used in Samsung Electronics Co Ltd's high-end Galaxy smartphones such as S4 and Note 2. Also, Maxim is expanding its mobile solutions toward mid-range smartphones as high-end smartphones are witnessing a slowdown globally.
The Volterra acquisition will help Maxim to further increase its market share in the smartphone market, which requiresmore of energy saving chips. We believe that the acquisition will broaden Maxim’s customer base, providing the company with a significant competitive edge.
Maxim has a well-diversified business. The company is continuously increasing its focus on the faster-growing consumer and computing end markets. However, in the last-reported fourth quarter, Maxim’s earnings of 44 cents missed the Zacks Consensus Estimate by 3 cents or 6.4%. The company’s revenues of $608.2 million wereup 0.5% both sequentially and year over year.
Maxim carries a Zacks Rank #4 (Sell). Stocks that are performing well at current levels include Supertex and Syntel Inc. (SYNT - Free Report) , bothcarrying a Zacks Rank #1 (Strong Buy).