Analog Devices Inc. (ADI) will acquire Linear Technology for $14.8 billion, making it a tougher competitor in the analog semiconductor sector with expected annual revenues of about $5 billion. The combined companies will become an analog industry leader across product categories, including data converters, power management, amplifiers, interface, and RF and microwave products.
The acquisition is part of the continuing consolidation in the semiconductor industry, shaking up the competitive rankings over the past year. ADI, which posted revenue of $3.5 billion in 2015, was ranked at number four in analog device sales by IC Insights, while Linear Tech, posting revenue of $1.4 billion, ranked at number eight in 2015.
Amid a flurry of acquisitions in the semiconductor industry over the past few years, analysts believe this could result in additional acquisitions as leading suppliers look to scale. “This move will create a ripple effect for other large suppliers to re-evaluate their scaling strategies and may result in additional acquisitions,” said Jonathan Liao, senior analyst, power semiconductors, IHS Markit, in a statement.
The two companies have a complementary high-performance analog product portfolio, which will boost ADI’s total market from $8 billion to $14 billion. More than 80 percent of ADI’s products are general-purpose analog devices used in a variety of applications including computing, communications, industrial, automotive, and consumer electronics, while all of Linear Tech’s revenues are derived from analog products, according to IHS. The primary competitors of the combined company will be Texas Instruments, Maxim Integrated, and Infineon.
“The combination of Analog Devices and Linear Technology brings together two of the strongest business and technology franchises in the semiconductor industry,” said Vincent Roche, President and Chief Executive Officer of Analog Devices, in a statement. “Our shared focus on engineering excellence and our highly complementary portfolios of industry-leading products will enable us to solve our customers’ biggest and most complex challenges at the intersection of the physical and digital worlds. We are creating an unparalleled innovation and support partner for our industrial, automotive, and communications infrastructure customers, and I am very excited about what this acquisition means for our customers, our employees, and our industry. ”
The acquisition is expected to increase ADI’s competitiveness in several end markets, agreed Liao. The biggest growth drivers over the past several years for both companies have been automotive and industrial end markets, he said.
ADI grew its automotive business from 12 percent of total revenue to nearly 16 percent in 2015, while Linear Tech tripled its automotive revenue from 7 percent of total revenue in 2010 to 21 percent of total semiconductor revenue. “ADI can benefit from a successful acquisition and integration of LLTC’s products into its manufacturing system, to capture additional revenue and accelerate growth in the automotive semiconductor market,” said Liao.
“IHS expects the automotive industry to be an important growth segment of the semiconductor industry over the next five years,” said Liao. “ADI’s decision to acquired LLTC is very timely, and is expected to create advantages in this market.”
In addition, both companies have thrived in the industrial market. Although Linear Tech is not ranked among the top 10 in the sector, ADI maintained its number five position among industrial semiconductor suppliers in 2015, according to IHS.
“In the industrial market, both ADI and LLTC have been growing successfully,” stated Liao. “The integration of their product portfolios will provide additional weapons for the combined entity to sell more high-performance products into the industrial market at a higher volume.”
IHS forecasts strong growth ahead in the industrial electronics category. The industrial electronics sector is expected to lead growth in the semiconductor industry through 2020, forecasting an 8.4 percent compound annual growth rate (CAGR) between 2015 and 2020.
Liao doesn’t believe the computing and consumer electronics markets will hurt the companies as both have been shifting away from these lower growth markets. Despite the slowdown in wireless communications early in 2016, Liao believes it “will remain a growing market in the short term. Brazil, India and other emerging markets will be a critical factor in the overall health of the wireless communications market, especially for smartphones and tablets.”
Liao’s overall take on the acquisition is that ADI will become a much stronger player in the analog market. “ADI will now be able to offer the same high performance, high margin products from LLTC to the same market,” he said. “If integrated correctly, ADI can use its high volume manufacturing for LLTC products and generate substantial growth from the automotive and industrial end markets, while growing quickly with improved gross margins.”
The transaction is expected to close by the end of the first half of 2017. Following the transaction close, Roche will continue to serve as president and CEO of the combined company, and David Zinsner, SVP and CFO of Analog Devices, will continue to serve as SVP and CFO of the combined company. Linear Technology will serve as a brand for Analog Devices’ power management offerings.