TI to buy National Semi for $6.5 billion

Texas Instruments Inc. signed a definitive merger agreement to acquire National Semiconductor Corp. for $6.5 billion in cash, the company said Monday (April 4).

"This acquisition is about strength and growth," Rich Templeton, TI's chairman, president and CEO, said in a statement. Templeton said TI believes it can accelerate growth of National's products with its considerably larger sales force.

The deal, which remains subject to regulatory review and the approval of National's shareholders, would bring together two of the longest-running semiconductor companies and two of the largest vendors of analog chips. TI, founded in 1947, is the No. 1 vendor of analog chips. National, founded in 1959, accounted for about 3 percent of the $42 billion overall analog IC market in 2010.

Steve Ohr, an analog semiconductor analyst at Gartner, said there is a good deal of overlap in the product offerings of TI and National. Ohr said the acquisition would provide TI with a way to grow rapidly, but that it wouldn't necessarily give TI product lines that it couldn't have developed internally.

Ohr said TI and National would complement each other in some ways and that, culturally, the companies are very similar. "These companies were very similar in their talents and strengths."

"There are a lot of overlapping products, but I don't think that's an issue at all. I think the real thing here is they are acquiring customers and diversifying their customer base," said Susie Inouye, an analyst with market research firm Databeans. Inouye said the acquisition would bring TI into a lot of new customers in the industrial marketplace.

"TI is not on an acquisition spree, but they are shopping for capacity and technology," Inouye said. "I think the main drivers for this acquisition are the customer base and (National's) sales force."

According to Databeans, National was the fifth ranked vendor in 2009, but slipped to No. 7 as some of its competitors grew faster than National in the rebound year of 2010.

Greg Lowe, senior vice president of TI's analog business unit, said TI had done intensive analysis on National's product line and concluded that the two companies' product lines are generally complementary. In some areas where the two may appear on the surface to compete head-to-head, Lowe said, "if you peel back the onion" it becomes clear that the products are used in different applications.

Lowe gave as an example switch mode power supplies. TI offers its Swift switchers with integrated FETs, which are mostly used in low-voltage applications, while National offers its Simple Switchers, mostly used in high-voltage applications.

"We've analyzed this across a number of product areas, and when you peel the onion one single layer, the portfolios are complementary," Lowe said.

"Our two companies complement each other very well," said Don Macleod, National's CEO.  "TI has much greater scale in the marketplace, with its larger portfolio of products and its large global sales force. This provides a platform to enhance National's strong and highly profitable analog capability, power management in particular, leading to meaningful growth."

According to Ohr, TI was looking into acquiring several companies in the $100 million to $300 million annual revenue range during the tail end of the most recent downturn.

TI ranked No. 4 in the world in overall semiconductor sales in 2010 with revenue of $11.9 billion. The addition of National's revenue would have made TI the No. 3 chip vendor in 2010, ahead of Toshiba and trailing only Intel Corp. and Samsung Electronics Co. Ltd., according to Gartner. National had revenue of $1.42 billion in its fiscal 2010.

According to market research firm IHS iSuppli, the acquisition would particularly bolster TI's lead in the market for voltage regulators. TI was the leading voltage regulator supplier in 2010, with $1.7 billion in revenue and market share of 18.1 percent, while National was the third largest supplier with market share of 15.2 percent, according to IHS. The combination would have given TI $.24 billion in regulator revenue for 2010, good for 26.5 percent of the market, IHS said.  

The global voltage regulator market expanded by 36.3 percent to reach $9.1 billion in 2010, better than overall IC growth of 32 percent, according to IHS. In the past nine years,, the global semiconductor market has expanded by 93.1 percent while the voltage regulator segment has expanded by 169.4 percent, IHS said.

According to IHS, the combined TI and National would have had analog IC revenue of $1.3 billion and 24.6 percent share of the analog market in 2010.