Analog chips are “red hot” as Analog buys Maxim for $21B

COVID-19 continues to kill people, jobs and economies, but there are still vital signs of life in the semiconductor industry partly due to the virus and work from home.

Last week, Analog Devices acquired Maxim in an all-stock deal valued at $21 billion, the biggest merger of 2020 in the semiconductor sector.  The deal combines the second and third biggest linear analog chip makers.   

Texas Instruments, however, remains the biggest player in analog, with 2019 revenues of $9.6 billion, compared to about $7 billion combined revenues for the newly merged companies. TI finished with about $14 billion overall in 2019, making it the seventh largest semiconductor maker, while Maxim was 19th and Maxim 31st, according to an Omdia tally of 150 global semi makers.

The deal faces antitrust reviews where China will be the biggest question mark, according to Omdia analyst Kevin Anderson.  China blocked Qualcomm’s attempt to buy Dutch chipmaker NXP for $38 billion in 2018 and will likely view the ADI-Maxim deal through a political lens, given China’s concerns over the U.S. restrictions on China-based Huawei. 

“China will be concerned about a bigger competitor,” Anderson said.

Still, the deal is a strong one for Analog, he said.  “For companies in a strong position like ADI, this is the time to buy,” he said.

The two companies make complementary products even though they both provide power management analog chips.  Maxim is strong in auto and data center chips, while  Analog has strength across industrial, healthcare and communications, the companies said in a release, calling that mix “highly complementary.”  They added that with respect to power management, Maxim has an applications-focused product set to complement Analog's set of broad market products.

“There’s not as much overlap as you might think,”  Anderson confirmed. “Both are big in power management but if you look at the specific parts, they don’t overlap much.  Maxim’s parts are app specific, but ADI parts are more general in nature.  While ADI has auto battery management products, Maxim’s battery management products are not for that high voltage.”

In auto, Analog has part for digital audio, while Maxim has parts for video, he said. “Maxim has been an attractive takeover target for many years and now it finally happened,” he added.

Anderson said it’s about normal to see a large consolidation in semiconductor companies like this one once per year, with a number of smaller mergers.   “Right now money is cheap and if you don’t have a lot of debt and can find a company where you don’t have to pay a fortune, that’s good,” he added.

With 150 semi companies still operating, the top 10 normally keep getting bigger and the bottom 140 keep “keep getting smaller,” he added. 

Jack Gold, an analyst at J. Gold Associates, said Analog's decision to buy Maxim “is an indication that the analog chip  market is red hot and companies are building  up in the places where they don’t have all the expertise they need.  ADI needed to have more analog power circuit capability, something that Maxim does well.  Smart devices including IoT and new phones are big users of analog so it makes sense to try and consolidate.”

Gold noted that COVID-19 has stimulated demand for new PCs, smartphones, Chromebooks, network gear and more so people can connect from home.

In a sign of that phenomenon, Microchip recently sent a letter to customers and partners that is has “experienced a large and growing number of orders being  placed to us with little or no lead time.”  The microchip maker said customer demand has been up with the need for more medical devices and work from home initiatives. Even in auto and some industrials, Microchip said there was a May/June recovery after a sharp decline in March and April.

Anderson said he wouldn’t be surprised if Microchip reports its orders were strong for the latest quarter.

“COVID-19 is awful,” Anderson said. “Many people aren’t working and the government is making sure people aren’t on the street, but there is an upside in some industries and semiconductors is one.  The stay at home economy has actually driven semiconductors in ways that are surprising.”

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