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By Thejeswi Venkatesh, Ben Kolada

So far, 2011 has been a banner year for semiconductor M&A – the first three quarters have already yielded the highest aggregate spending on chip deals since 2006. But now, the industry seems to be headed for a slowdown.

Industry veteran Fairchild Semiconductor (NASDAQ:FCS) recently reported third-quarter revenue of just over $400m, better than expected but still down 7% sequentially and 3% from the year-ago period. Continuing the decline, the company provided a bleak outlook for the fourth quarter, citing weak demand in the end markets that it serves – particularly the computing and consumer sectors. And the drop-off shouldn’t be taken lightly, considering demand typically picks up in the fourth quarter due to the holiday season and increased consumer spending.

Coinciding with Fairchild and the greater semiconductor industry’s slowdown, dealmaking has also taken a nosedive. The aggregate value of all semiconductor transactions in the just-closed third quarter was $6bn, the lowest this year, and Broadcom’s (NASDAQ:BRCM) $3.9bn acquisition of NetLogic Microsystems (NASDAQ:NETL) alone accounted for more than half of that amount. Further, volume slid as well, with only 32 deals announced in Q3, one-third less than the total volume announced in the first two quarters of the year.

Semiconductor M&A activity, 2011

Quarter Deal volume Deal value Number of deals valued at $1bn or more
Q3 32 $6.17bn 1
Q2 45 $16.49bn 3
Q1 43 $8.34bn 2

Source: The 451 M&A KnowledgeBase

Source: Chip M&A Heading For A Slowdown