TI Acquires Natsemi To Widen Analog Lead

Two of the oldest names in the semiconductor business, Texas Instruments and National Semiconductor, are to merge to create a powerhouse in analog chips.

Focal Points:

• Analog products are rarely given any prominence in smartphone teardowns, overshadowed by the more glamorous and expensive digital processors and displays, but a high end handset usually has about 30 of these chips, which are also important in sectors such as auto, medical and industrial. Analog chips feature passive elements that are used for mixed signal processing in electronic devices.
• This is a growth market and one on which TI has focused much of its attention in recent years, especially since moving out of mobile basebands. Its product balance has shifted to analog from the DSPs for which it is best known, and now it has acquired NatSemi in a move to consolidate a fragmented sector. The $6.5bn deal will spark further M&A, suspects Glen Yeung, an analyst at Citigroup, as companies look for scale. "We suspect other analog companies will be forced to consider complementary portfolios, combined salesforces, and eventually 300mm capacity," he said.
• With the NatSemi purchase, TI gains a largely complementary product range and the ability to put greater resource behind its new unit's sales. TI said in a statement: "National has a rich line-up of high voltage power management products that are well suited to industrial power applications, while our power management product offerings are more oriented towards portable devices. There are plenty of examples like this but the bottom line is that the combination of TI and National means we can engage with customers and an application segment where we have no or minimal engagement today."
• In 2008, when TI left behind its merchant cellphone baseband business, CEO Rich Templeton said he was targeting increased business outside mobile and in the growth markets of medical, energy and public safety systems, and that the main products to take TI further into these sectors would be low power processing and analog/mixed signal building blocks. His theme since then has been that TI focuses on digital signal "processing" rather than simply digital signal "processors".
• At that time, analog and DSP accounted for about the same percentages of TI's revenue - around 40% each - but Templeton estimated analog to be 5-7 times the size of DSP, and with more new business available to TI (which then had 13% share, compared to 50% for mobile DSPs, and more in infrastructure). After the closure of the NatSemi acquisition, analog will rise from 43% of TI's revenue to 50% and Templeton says he will target 18% analog market share (up from 14.6% in 2010). The purchase will add 12,000 products to TI's existing catalog of 30,000.
• NatSemi has been struggling over the past year, dropping from fifth to seventh place in the market in 2010 even as TI has gained ground. In 2010, it had 14.6% share of the analog sector by revenue, according to Electronics.ca, widening its lead over STMicro on 10.1% and Infineon on 7.9%. After these three, the main rivals were Analog Devices, Maxim, Linear Technology, Intersil and Freescale.

In the semiconductor market as a whole, the acquisition will allow TI to overtake Toshiba as the world's third largest player after Intel and Samsung, according to IHS iSuppli.