Analog chip makers, faced with slowing industry growth and looking to put their piles of cash to use, are likely to search out deals in the coming months.
The pace of deals had lagged behind the overall technology sector because of strong growth opportunities within the industry. The analog semiconductor industry grew at about 25 percent annually from the mid-1990s until about five years ago, driven by exponentially increasing demand for these chips from industries ranging from housing to communications.
Analog chips receive continuous signals and are used in products that involve sound waves or pressure, which cannot be broken into ones and zeros — the stuff of digital signals. Mobile phones, computers, planes, cars and radios all use analog chips.
But the industry is now maturing, with the rate of growth dropping to about 10 percent annually. Analysts expect growth to decline slightly over the next few years.
“Growth isn’t as explosive anymore,” Patrick Wang, an analyst at Wedbush Morgan, said. “The industry is ripe for consolidation.”
Analog chip makers are also feeling the sting of the economic downturn, which has shrunk demand for mobile phones, consumer electronics and other products that use analog components. Last month, Texas Instruments, the largest U.S. maker of chips for cell phones, lowered its first-quarter earnings forecast, citing a weaker market for chips used in high-end phones.
These factors are likely to spur companies that have the cash to look for alliances designed to lead them to new markets and plug holes in their product portfolios, analysts said.
Wang said he expected a handful of acquisitions over the next 12 months, as companies try to scale up by combining products, cross-promoting them and bundling sales.
The uncertainty in financial markets may also lead these cash-rich companies to seek acquisitions, since they could get better returns from a deal than…