Amid consolidation in the chip industry, a key question among Wall Street analysts is "Who's next?" One research firm on Thursday highlighted three semiconductor stocks as possible acquisition targets.
XSusquehanna Financial Group analyst Christopher Rolland identified the trio of semiconductor stocks as candidates for mergers and acquisitions by matching "strategic value" with "financial value."
Using those criteria, he selected as top takeout picks Cirrus Logic (CRUS), Knowles (KN) and Qorvo (QRVO).
Of those three semiconductor stocks, Rolland has a positive rating on only Cirrus Logic. He rates Knowles and Qorvo as neutral.
Semiconductor Stocks In Play?
"While last decade saw industry consolidation averaging 10% to 15% per annum, this rate has slowed to about 9% in 2021 and just 4% in 2022 year to date," Rolland said in a note to clients. "We note that stretched valuations and regulatory concerns may have deterred interest. Regardless, consolidation continues."
Rolland rates Knowles as the most likely of the three semiconductor stocks to get acquired. Knowles is the dominant global player in microphone MEMs, or micro-electromechanical systems. It also makes capacitors and other precision components.
Further, Knowles would be a good acquisition for private equity or a company looking to provide an end-to-end audio system, Rolland said. Those companies would include Cirrus Logic, Infineon and others with handset and audio exposure.
Apple Seen As Possible Chip Company Buyer
Meanwhile, Apple (AAPL) is the most likely buyer for Austin, Texas-based Cirrus Logic, Rolland said.
"We have repeatedly highlighted that Cirrus' advanced mixed-signal capabilities could be beneficial to Apple as they look to internalize more silicon," Rolland said. "For example, we believe the iPhone (and even AirPods, Apple Watch, etc.) could benefit from 'Apple Austin,' a proprietary mixed-signal team that can expand many more products internally."
Lastly, Qorvo would be an attractive acquisition for a company looking to complete its wireless chip portfolio, Rolland said.
"Qorvo's expertise in BAW (bulk acoustic wave) could round out an RF (radio frequency) portfolio," he said. "We think a handset player like Apple looking to vertically integrate RF could accelerate their ambitions here."
In addition to Apple, other potential buyers include wireless chip peers Skyworks Solutions (SWKS) and Qualcomm (QCOM), as well as Apple rival Samsung.
Semiconductor Stocks Trailing Broader Market
Susquehanna has a decent track record for predicting acquisitions in the chip industry. In September 2018, it highlighted four top takeout candidates and three were later acquired.
The Philadelphia semiconductor index, known as SOX, is down 35.4% year to date. By comparison, the S&P 500 index is down 18.2% so far in 2022. The SOX includes the 30 largest semiconductor stocks traded in the U.S.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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