April 4, 2011
Texas Instruments Inc.signed a definitive merger agreement to acquire National Semiconductor Corp. for $6.5 billion in cash, the company said Monday (April 4).
"This acquisition is about strength and growth," said Rich Templeton, TI's chairman, president and CEO, said in a statement. Templeton said TI believes it can accelerate growth of National's products with its considerably larger sales force.
The deal, which remains subject to regulatory review and the approval of National's shareholders, would bring together two of the longest-running semiconductor companies and two of the largest vendors of analog chips. TI, founded in 1947, is the No. 1 vendor of analog chips. National, founded in 1959, accounted for about 3 percent of the $42 billion overall analog IC market in 2010.
Steve Ohr, an analog semiconductor analyst at Gartner, said there is a good deal of overlap in the product offerings of TI and National. Ohr said the acquisition would provide TI with a way to grow rapidly, but that it wouldn't necessarily give TI product lines that it couldn't have developed internally.
Ohr said TI and National would complement each other in some ways and that, culturally, the companies are very similar. "These companies were very similar in their talents and strengths," Ohr said."There are a lot of overlapping products, but I don't think that's an issue at all. I think the real thing here is they are acquiring customers and diversifying their customer base," said Susie Inouye, an analyst with market research firm Databeans. Inouye said the acquisition would bring TI into a lot of new customers in the industrial
marketplace."TI is not on an acquisition spree, but they are shopping for capacity and technology," Inouye said. "I think the main drivers for this acquisition are the customer base and [National's] sales force."
According to Databeans, National was the seventh-ranked analog IC supplier in 2010 and 2009. National was the No. 3 player in both general purpose analog and amplifiers/ comparators in 2010, according to Databeans.
Greg Lowe, senior vice president of TI's analog business unit, said TI had done intensive analysis on National's product line and concluded that the two companies' product lines are generally complementary. In some areas where the two may appear on the surface to compete head-to-head, Lowe said, "if you peel back the onion" it becomes clear that the products are used in different applications.Lowe gave as an example switch mode power supplies. TI offers its Swift switchers with integrated FETs, which are mostly used in low-voltage applications, while National offers its Simple Switchers, mostly used in
"We've analyzed this across a number of product areas, and when you peel the onion one single layer, the portfolios are complementary," Lowe said."Our two companies complement each other very well," said Don Macleod, National's CEO. "TI has much greater scale in the marketplace, with its larger portfolio of products and its large global sales force. This
provides a platform to enhance National's strong and highly profitable analog capability, power management in particular, leading to meaningful growth."
According to Ohr, TI was looking into acquiring several companies in the $100 million to $300 million annual revenue range during the tail end of the most recent downturn.
TI ranked No. 4 in the world in overall semiconductor sales in 2010 with revenue of $11.9 billion. The addition of National's revenue would have made TI the No. 3 chip vendor in 2010, ahead of Toshiba and trailing only Intel Corp. and Samsung Electronics Co. Ltd., according to Gartner.National had revenue of $1.42 billion in its fiscal 2010.
According to market research firm IHS iSuppli, the acquisition would particularly bolster TI's lead in the market for voltage regulators. TI was the leading voltage regulator supplier in 2010, with $1.7 billion in revenue and market share of 18.1 percent, while National was the third largest supplier with market share of 15.2 percent, according to IHS. The combination would have given TI $.24 billion in regulator revenue for 2010, good for 26.5 percent of the market, IHS said.
The global voltage regulator market expanded by 36.3 percent to reach $9.1 billion in 2010, better than overall IC growth of 32 percent, according to IHS. In the past nine years,, the global semiconductor market has expanded by 93.1 percent while the voltage regulator segment has expanded by 169.4 percent, IHS said.According to IHS, the combined TI and National would have had analog IC revenue of $1.3 billion and 24.6 percent share of the analog market in 2010.
12,000 products and three fabs
TI said National would bring to the company a portfolio of 12,000 analog products, a strong position with customers in the industrial power market and excellent customer design tools. Upon close of the transaction, National would become part of TI's analog segment, and sales of analog semiconductors would represent almost 50 percent of TI's revenue, TI (Dallas) said.
The deal also brings to TI National's fabs in Maine, Scotland and Malaysia, each of which has additional capacity to increase production, TI said. For more than a year, TI has been adding capacity, buying two fabs in Japan from Spansion Inc., a former Semiconductor Manufacturing International Corp. fab in Chengdu, China, and ramping up the industry's first 300-mm analog IC fab in Richardson, Texas. Collectively, prior to the National deal, these moves have allowed TI to recently bring online about $5 billion of analog IC production capability.
Bringing on new capacity helped TI further distance itself from competitors in the analog space last year, according to Databeans.
For years, there have been rumors about a possible TI merger with National Semiconductor. EE Times' Semiconductor editor Mark LaPedus reported last year that National was a takeover target, predicting that TI was a likely bidder.
There have been only a few big analog mergers in the past, observers noted. Each analog vendor has proprietary processes and technologies that don't exactly port from company to company. So, the TI-National deal raises a question: How does TI plan to integrate National into the mix?
In 2009, National Semiconductor celebrated its 50th anniversary and touted its accomplishments. In 1967, for example, National developed the first integrated voltage regulator, the LM100. National went on to develop the industry's first modern operational amplifier (LM101), which is still in use today. National also pioneered low-voltage differential signaling (LVDS), Ethernet devices and even a 32-bit microprocessor.
But for some time, National's future remained cloudy despite a push in solar and other markets. For some time, the company has been suffering. Besides a string of losses, layoffs and cutbacks, it continues to lag in its core analog business and is losing share.
In 2003, under former CEO Brian Halla, who stepped down at National in 2009, an initiative called National 2.0 was launched, in which it adopted a 60-30-30 strategy. An aim of 60 percent gross margin, 30 per cent spending, leaving a 30 per cent operating margin. Don Macleod, the new CEO of National Semiconductor Corp., become a man with a mission and sought "growth in revenue.'' Some wonder if that strategy failed, or if National on the block in the first place.
National recently reported sales for quarter ended Feb. 27 that fell short of consensus analysts' expectations as the company cited an inventory correction and post-holiday slowdown in mobile phone sales.
Meanwhile, in analog, TI has made several acquisitions. In 1999, TI completed a $1.2 billion stock-for-stock acquisition of Unitrode Corp. At the time, the company said it would broaden the range of power-supply control and battery management ICs being offered by Unitrode in new and existing markets.
In 2000, TI acquired Burr-Brown for stock valued at about $7.6 billion. The acquisition was aimed at primarily strengthening TI's product offerings in the data converters and amplifier segment of the analog chip market.
In 2007, TI bought Powerprecise Solutions, a supplier of battery management technology. In 2008, TI bought Commergy Technologies, which develops power supply technology. And also that year, it bought Innovative Design Solutions, which has expertise in integrating high-speed analog devices for markets like test and measurement, communications and medical.
Expanding its analog power management lines, TI acquired Ciclon Semiconductor Device Corp. for an undisclosed price in 2009. With Ciclon, Dallas-based TI gained quick entry into the power MOSFET and
other analog-oriented IC businesses.
Under terms of the agreement, National stockholders will receive $25 in cash for each share of National common stock they hold at the time of closing, expected to tabke about six to nine months, TI said. National's
stock closed Monday at $14.07 prior to the acquisition announcement.
Inouye said that two or three years ago TI would likely have had to pay more than the $25-per-share price of the acquisition announced Monday.
"We are very, very excited about this deal," said TI's Lowe. "National is the original analog company."
TI said it expects to fund the transaction with a combination of cash on hand and debt. As of Dec. 31, 2010, TI had cash and cash equivalents of about $1.3 billion on its balance sheet.