Linear: Buyback Plan Spurs Talk About Analog Rivals

Linear Technology’s (LLTC) announcement yesterday of plans to spend $3 billion to buy back about 30% of its stock has energized shares of the analog semiconductor sector, which includes a variety of companies which, like Linear, feature under-leveraged balance sheets and under-performing shares.

Uche Orji, an analyst at UBS, thinks Maxim (MXIM) and Analog Devices (ADI) could make similar moves. He notes that ADI as of last night had 16% of its market cap in cash.

Merrill Lynch’s Joe Osha notes that the average analog semi company has 11% of its market cap in cash. “We have yet to find a reasonable argument why a sector we anticipate posting annual growth in the vicinity of 10% requires an average of 11% net cash on the books,” Osha wrote in a note this morning.

The increased LBO activity in the sector is testament to the unsustainability of the status quo, and similar transactions by Cypress Semiconductor (CY) and Xilinx (XLNX) add further support to the notion that capital structures are finally being fixed.

Osha argues that Linear could actually buy back a lot more stock; he says Linear could be demonstrating “the beginning of the first slow motion buyout in the semiconductor business.”

In today’s trading:

Linear is up $3.83 at $35.95.

Maxim is up $2.06 at $31.16.

Analog Devices is up $1.65 at $37.88.

Cypress is up 24 cents at $20.89.

Xilinx is up 89 cents at $27.19.