Texas Instruments tipped as chip industry's next consolidator

By Liana B. Baker

NEW YORK (Reuters) - Texas Instruments Inc (TI) (TXN.O) could be gearing up to make the next big deal in what has already been a record-breaking year for semiconductor M&A, industry bankers and analysts said.

The Dallas, Texas-based chipmaker, which has a market capitalization of $56 billion, has so far stayed on the sidelines as peers Intel Corp (INTC.O), Avago Technologies Ltd (AVGO.O) and NXP Semiconductors NV (NXPI.O) made acquisitions worth tens of billions of dollars earlier this year.

TI is looking for large acquisitions as well, according to people familiar with the matter. It held talks to acquire Maxim Integrated Products Inc (MXIM.O) late last year but discussions broke off when Maxim, which has a market capitalization of about $10 billion, decided not to sell itself, the people said.

TI also considered buying Freescale Semiconductor Ltd (FSL.N) before Freescale agreed to be acquired by NXP in March for $11.8 billion, the people said.

A TI spokeswoman said the company has a long-standing policy to not comment on market rumors and speculation or competitor activity. Maxim declined to comment and Freescale did not respond to a request for comment.

If Texas Instruments chief executive Rich Templeton doesn't make a move soon, the company could run out of high value targets, FBR Capital Markets analyst Christopher Rolland said. TI should act by the end of the year while NXP, one of its fastest growing rivals, is tied up awaiting approval for its merger with Freescale, he said.

"If I was TI, I would think of what NXP's next target would be and should I get there first," Rolland said.

Driving TI's appetite for M&A, according to the sources, is a desire to improve on its profitability and increase its share in the fragmented market for analog chips, which process signals such as sound, light and temperature and convert them into digital signals, and are central to smart phones and devices connected to the Internet.

To be sure, TI is not the only big semiconductor company on the hunt for a large deal. Larger peer Qualcomm Inc (QCOM.O), which has a market capitalization of $110 billion, may look to make a substantial acquisition to bulk up its data center and cloud businesses, as its mobile phone customers see their markets mature, some of the people said. Qualcomm declined to comment.

The right deal could boost TI's operating margins and profits by increasing the utilization rates in TI's 21 fabrication plants in nine countries. This could be done by tapping the production volumes from the acquisition target over a number of years, according to analysts.

In addition to Maxim, TI could look at Analog Devices Inc (ADI.O), Linear Technology Corp (LLTC.O), Microchip Technology Inc (MCHP.O), Intersil Corp (ISIL.O) and Atmel Corp (ATML.O), a $4 billion microcontroller company which Reuters reported last week was exploring options, analysts said.

Microcontrollers are small computer processors designed to do tasks that are used in a variety of electronics. TI has a microcontroller business.

ANALOG CHIPS

Semiconductor dealmaking has reached $79.7 billion so far this year, an amount that already surpasses every full-year period on record, with the exception of 2000, when M&A in the sector hit $115.5 billion.

TI focuses on analog and embedded chips, which are used in products ranging from cars to televisions and account for the bulk of the company's revenue.

TI's chief financial officer Kevin March said on a conference call with analysts last fall that TI would prefer to buy an analog company that sells into the industrial and automotive markets, or one that provides catalog parts which are non-custom silicon parts.

Some analysts said however that TI is very price conscious. Wedbush Securities analyst Betsy Van Hees said TI has done well by not pursuing big M&A for four years, focusing instead on its core competencies in analog and microcontrollers.

Since it bought National Semiconductor for $6.5 billion in 2011, its last large scale acquisition which some analysts have argued it overpaid for, TI developed a reputation as an M&A skeptic, preferring to use its cash flow to buy back shares and pay dividends.

"There's no question that TI gets a first look at everything but they have a real rigid strategy in terms of what they expect for their return on invested capital. If it doesn't fit that box, they don't acquire it," Van Hees said.

(Reporting by Liana B. Baker in New York; Editing by Greg Roumeliotis and John Pickering)