(01/13/2010 12:57 PM EST)
Christopher Danely, an analyst with JP Morgan Securities Inc., said in a report titled "Top 10 Semiconductor Predictions for 2010" that the year could bring a big strategic acquisition to the semiconductor space. In addition to Intel acquiring an FPGA vendor, Danely speculated that other large acquisitions could be possible, including Analog Devices Inc. (ADI) buying a power management IC company and Microchip Technology Inc. buying a company to expand its presence in the microcontroller market.
Intel has been gearing up to expand its presence in the embedded space, last year acquiring embedded software specialist Wind River Systems Inc. andporting unspecified Atom processor cores to Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC)'s technology platform. Danely speculates that an acquisition of Xilinx or Altera would jump start these efforts, but it is unclear how the FPGA technologies would mesh with Intel's. Like many companies, Intel previously played in the programmable logic space but abandoned those efforts years ago.
Danely said that both Actel Corp. and Lattice Semiconductor Corp. would be unlikely targets for Intel (Santa Clara, Calif.) because of their relatively small size. Xiliinx (San Jose, Calif.), the market leader in programmable logic, would make a more attractive target for Intel than No. 2 player Altera (San Jose), Danely wrote, because Xilinx has higher operating expenses and could offer Intel higher cost savings opportunities.
Altera, a customer of Taiwan Semiconductor Manufacturing Co. (TSMC), has in recent years maintained a process technology migration lead over Xilinx, which uses foundry suppliers United Microelectronics Corp. (UMC), Samsung Electronics Co. Ltd. and others. Danely speculated that Intel could significantly boost Xilinx by buying the company and migrating its products to Intel process technology, which is the most advanced in the industry.
Another Wall Street analyst, Hans Mosesmann of Raymond James Equity Research, doesn't share Danely's view. Mosesmann said his firm would "wholeheartedly disagree" with speculation that Intel might buy Xilinx or Altera, at least in 2010.
Mosesmann said Intel really wants to be relevant in wireless and smartphones. An acquisition of Xilinx or Altera would have no value in that endeavor, he said.
Mosesmann noted that Intel already tried its hand in programmable logic but ultimately sold its PLD business to Altera for about $50 million in 1994. "They've been there," he said. "They've done that. It's not their gig."
Intel, which has about $13 billion in cash on its balance sheet, would certainly have to dig deep to buy Xilinx. Xilinx has a market capitalization of roughly $6.7 billion, and shareholders would no doubt expect a premium over the company's current stock price of a little over $24.
Other acquisition scenarios, predictionsIn other potential semiconductor acquisition scenarios, Danely speculated that Monolithic Power Systems Inc., Intersil Corp. and National Semiconductor Corp. could be strategically attractive to ADI since all three have the majority of their product portfolios in power management, where ADI has a limited presence despite investing heavily in over the past few years.
Danely also speculated that Microchip could make another bid to acquire Atmel Corp. to supplement its microcontroller business. Although Microchip'sprevious bid to acquire Atmel failed in February 2009, "we believe both companies could revisit the a deal if they can could work out an agreement on how to divest [Atmel's] other lines of business," Danely wrote.
In other predictions, J.P. Morgan expects Xilinx to continue to gain market share at the expense of Altera due to Xilinx' presumed lead at 65-nm, Danely wrote. But the firm expects Altera to gain back share in the second half of the year thanks to its lead in the 40-nm high density category with the Stratix IV family.
Danely also predicted that semiconductor capital expenditures in 2010 would disappoint bulls who see a big year for equipment suppliers. "While we agree capacity is tight, we believe the problem is mostly back -end- related," Danely said. "We would note back-end capacity additions do not cost as much as front-end capacity additions."