A couple of days after the CEO of Texas Instruments, the largest analog chipmaker, rebuffed market pressure to make an acquisition, the two leading analog and mixed-signal design houses have tied the knot in a $14.8 billion deal.
Analog Devices Inc. and Linear Technology Corp. are going to merge in a cash-and-stock deal to create the second-largest analog chip firm after TI. Industry observers mostly see ADI’s acquisition of Linear as the result of the consolidation wave that has engulfed the semiconductor industry for the past couple of years.
Image courtesy of ADI.
Early statements from senior executives of both companies seem to echo that premise. According to Bob Swanson, Linear’s co-founder and executive chairman, his firm wasn’t on the block for sale. However, the business merits of the deal swayed Linear's leadership to end their 35-year run of organic growth and become part of ADI operations.
Bob Swanson co-founded Linear Technology Corp. along with Bob Dobkin in 1981. Image courtesy of Electronic Design.
There are going to be about $150 million worth of annual cost savings during the initial phase of the deal—and the combined company is projected to achieve about $5 billion in annual sales. That brings us to the second premise that analysts are talking about regarding this deal.
The analog semiconductor world is largely about product breadth and, here, the two firms seem to complement each other well. The Norwood, Massachusetts–based ADI is known to be strong in areas like data converters, amplifiers, and RF devices. Linear, headquartered in Milpitas, California, is also prominent in data converters, RF, and power amplifiers.
However, it’s the power management portfolio of Linear that creates the biggest complement of this deal. The fact that ADI will continue to use the Linear brand for power management ICs is a testament that this power portfolio is the crown jewel in this multi-billion dollar deal.
In the analog design realm, apart from the breadth of product portfolios, what matters the most is the engineering cost of developing chips that are targeted at specialized segments. Such segments generally don’t demand high volumes of production. Moreover, analog engineers are hard to find and retain. This merger could help ADI on both of these fronts.
Linear’s LTC3107 chip increases the life of battery cells by harvesting surplus energy from renewable sources. Image courtesy of Linear Technology.
The IoT Angle
Now, when analog chips’ largest market—smartphones and tablets—is slowing down, the elephant in the room is the Internet of Things (IoT). The IoT is known for the diversity of products it brings to life and it's growing by the day.
ADI’s president and chief executive Vincent Roche was probably hinting toward this as a long-term goal of the acquisition when he said:
“This is the right deal at the right time in the analog industry.”
An army of sensors is readying to join the IoT world, and analog products are going to build the bridge between these sensors and IoT edge nodes. The growing number of sensors in the IoT and connected car realms will lead to a greater demand for analog chips developed in a smaller time-to-market window.
So a closer look at the deal between ADI and Linear shows more than merely financial gains. It could be the beginning of a much larger movement.