Fairchild Semiconductor has agreed to a takeover by ON Semiconductor for roughly $2.4 billion in cash.
Both companies provide power ICs. ON Semiconductor Corp. (Nasdaq: ONNN) makes low-voltage chips for the automotive, industrial, medical, communications and consumer markets. Buying Fairchild Semiconductor Inc. (Nasdaq: FCS) expands ON's portfolio with medium- and high-voltage power ICs aimed at the automotive, industrial and smartphone markets.
The main issue for ON and Fairchild is scale; many of their competitors are involved in mergers of their own and getting bigger. There may be opportunity for organic growth in some markets (e.g., automotive and Internet of things) but not in others (e.g., smartphones). Meanwhile, debt is cheap.
Other companies offering power ICs have either already merged or are widely considered to be targets. NXP Semiconductors N.V. (Nasdaq: NXPI) bought Freescale. PMC-Sierra Inc. (Nasdaq: PMCS) is juggling offers from Skyworks Solutions Inc. (Nasdaq: SWKS) and Microsemi Corp. Analog Devices Inc. (NYSE: ADI) and Texas Instruments Inc. (NYSE: TXN) are both said to be looking at Maxim Integrated Products Inc. (Nasdaq: MXIM). (See More Chips Fall: NXP Buys Freescale, Skyworks Scoops Up PMC-Sierra for $2B and TI Reported Talking to Maxim.)
A bottom-line cost for everything electronic is power, and with costs squeezed out almost everywhere else, more effective power management is becoming increasingly critical for everything from physically small items such as smartphones to larger systems such as data center servers.
The ON-Fairchild deal will be financed by using about $300 million in available cash held by both companies, plus about $2.4 billion in debt. The combined entity is on track to post annual revenue of just less than $5 billion. ON observes that it will become one of the top 10 IC companies that do not sell memories.
The deal will retire one of the most respected brand names in the industry. Today's Fairchild bears little resemblance to what it once was, but it was among the first most successful semiconductor companies. Fairchild, founded in 1957 as a division of Fairchild Camera and Instrument, not only did pioneering work with transistors and integrated circuits, but was also a hotbed of talented engineers who went on to found some of the other most recognizable companies in the industry, including Intel and National Semiconductor (which owned Fairchild from 1987 until 1997).
— Brian Santo, Senior Editor, Components, T&M, Light Reading