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Micron And NSM In Acquisition Mode

Posted on Monday, Jul 5th 2010

Chipmakers Micron (NYSE:MU) and National Semiconductor (NYSE:NSM) have been in acquisition mode. Micron acquired NOR flash maker Numonyx for $1.27 billion while National Semi recently acquired fabless chipmaker GTronix for an undisclosed sum. Let’s take a closer look.

As Mark LaPedus on EETimes reports, GTronix specializes in programmable and adaptive analog sensory processing technology. It provides low-power solutions for noise cancellation that enhance audio user interface and voice processing in mobile applications such as wireless handsets and audio accessories. National Semiconductor’s portfolio of analog products includes acoustic integrated circuits and subsystems, and its audio product portfolio includes the Boomer audio amplifier.

National Semiconductor, with annual revenue of $1.42 billion, recently reported a strong quarter driven by increased demand for its analog products for the wireless handset and industrial markets. Its fourth quarter revenue was $398.5 million, up 42% y-o-y and 10% q-o-q. Net income was $79.2 million or $0.33 per share, up from $$53.2 million or $0.22 per share last quarter and swinging from a loss of $63.7 million or per share last year. Gross margin increased to 68.8% from 58.3% last year and 67.3% last quarter driven by improvements in manufacturing cost performance and increased capacity utilization. Q3 coverage is available here.

National recently introduced the solar industry’s first in-panel analog-intensive power management SolarMagic chipset, SM3320, that improves the power output, reliability, and cost effectiveness of solar systems. For the first quarter, National Semi expects the wireless handset and industrial end markets to drive more revenue growth opportunities for its analog, and in particular, power management products. It expects first quarter revenue to increase 3% to 5% to a range of $410 million to $418 million. It is currently trading around $13.56 with market cap of about $3.2 billion and a 52-week range of $11.60 to $16.20.

Shara Tibken on WSJ.com reports that shares of National Semi slumped after Nokia cut its guidance. Nokia is a big customer for National Semi – it provides a chip for power management in Nokia handsets. Analysts say other chipmakers to be potentially affected by this news are TI and STMicro, whose shares slipped by 1% and 3%, repsectively.

Chart forNational Semiconductor Corporation (NSM)

Micron closed its Numonyx acquisition in May. As we discussed last quarter, the deal doesn’t make much sense. Right after recovering from three years of losses, Micron has plunged into this acquisition in the low-margin area of NOR flash. Micron Chief Executive Steve Appleton said the deal helps further diversify Micron’s business amid the growing mobile device market as smartphone memory needs grow, and lower-end cellphones with smaller memory become more ubiquitous in the developing world. It broadens its portfolio to span the memory spectrum and would rival Samsung as a one-stop shop for memory.

Last week, Micron reported third quarter revenue of $2.29 billion, compared to $1.11 billion last year and $1.06 billion last quarter. Net income was $939 million or $0.92 per share versus net loss of $301 million or $0.37 per share last year. The results included $488 million in purchase accounting gains relating to the Numonyx acquisition. After repaying $378 million of debt, Micron ended the quarter with cash and investments of more than $2.3 billion. Q2 coverage is available here.

This quarter results marked its highest quarterly sales in nearly a decade and the highest net income in the company’s history, driven by increasing chip sales. DRAM sales increased 10% due to a 9% increase in ASPs and a slight increase in sales volume. NAND sales increased 16% q-o-q due to a 21% increase in sales volume, partially offset by a 4% decrease in ASPs. The Numonyx operations added approximately $80 million to consolidated net sales at a nominal margin due to the application of purchase accounting. Gross margin improved from 35% last quarter to 40% due to the rise in ASPs and the benefit for price adjustments from suppliers of NAND products.

For the fourth quarter, Micron expects prices for DRAM to remain relatively flat, while flash chips could fall by 1% to 2%. Micron is currently trading around $8.22 with market cap of about $7.03 billion. It hit a 52-week high $11.34 on January 6.

Chart forMicron Technology Inc. (MU)

Jerry A. DiColo, also on WSJ.com, reports that despite strong third quarter results last week, shares of Micron dipped as analysts pointed to the potential for lower margins from sales of Numonyx chips in the fourth quarter. Micron is looking to rival Samsung, but Samsung balances its act as a leading vendor and supplier in the consumer electronics and handset markets. Micron supplies memory chips in the iPhone, but Samsung is a leading supplier for Apple’s iPhone and iPad devices.

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