TI buys National Semiconductor for $6.5 billion

The deal will shrink the number of players in an already small group of analog semiconductor suppliers, an analyst says

Texas Instruments on Monday announced it has agreed to acquire semiconductor company National Semiconductor for US$6.5 billion in an all-cash transaction.

TI, which makes low-power chips, said it would combine its 30,000 analog products and advanced manufacturing capabilities with the offerings of National Semiconductor, which makes analog integrated circuits.

National will bring 12,000 analog products to the joint product portfolio. On the close of the deal, National will become a part of TI's analog segment. Sales of analog semiconductors will represent almost 50 percent of TI's revenue, the companies said in a joint statement.

Analog semiconductors convert analog data into digital signals in smartphones, PCs and many other devices.

"This acquisition is about strength and growth," said Rich Templeton, TI's chairman, president and chief executive officer, in the statement. Each company has unique strengths in delivering products to improve performance and efficiency and convert real-world signals in electronic systems, the companies said.

In a conference call to discuss the deal with analysts, executives from TI and National said that there is very little product overlap at the companies. TI currently has three segments to its analog business and with the acquisition will add a fourth, Templeton said.

"The thought process isn't one of consolidation, but an opportunity to grow faster, and it's a great way to put $6.5 billion to work earning pretty good rates of return," he said.

TI expects to retain all of National's engineering talent but might find some overlap in people who take care of corporate functions such as IT. Still, TI expects that once it reduces that overlap, it will save about $100 million through efficiencies.

TI also expects to retain all the manufacturing processes and facilities in use by National. Because National has so-called "headroom" in its manufacturing, or the ability to make more than it currently produces, it offers TI the ability to grow, said Templeton.

National wasn't looking to be acquired, said the company's CEO, Don Macleod. But TI approached the company and the leaders decided joining the two would complement each other, he said.

Because TI's sales force is much larger than National's, he expects the combination to significantly boost sales of National's products.

The acquisition is subject to customary closing conditions and is expected to close in six to nine months, they said. The executives said that while the deal faces regulatory scrutiny in many regions around the world, they don't expect issues with the dominance of the new combined company.

"It's a fragmented market," Templeton said. TI has about 14 percent market share in the analog market and National about 3 percent, he said. "The story of analog is, when you drill down into the compartments and product areas, you find competitive offerings in many of these spaces," he said.

If the acquisition is completed, TI will have a stronger foothold in a market in which it already is a leader, said Nathan Brookwood, principal analyst at Insight 64. The acquisition could provide new growth opportunities and an extended market presence for products made by National Semiconductor, which over the years has tried a variety of tactics to grow its business.

"These are both names that have been a part of the semiconductor industry since the days the industry got created" decades ago, Brookwood said.

The analog semiconductor market has always been an exclusive club of a few companies, Brookwood said. The acquisition could help contract the market into a few players that includes Linear Technology and NXP Semiconductor.

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