FBR, Nomura name potential chip industry M&A targets

|By:, SA News Editor

The consolidation wave that has hit the semi industry could soon yield tax inversion deals for foreign firms similar to deals seen in the healthcare industry, says FBR's Christopher Rolland.

Inversion deals allow U.S. companies buying foreign firms to see lower tax rates if less than 80% of the equity in the new company is owned by legacy U.S. shareholders, and the post-merger company has substantial foreign ops.

Rolland thinks ARM (ARMH), NXP (NXPI), Mellanox (MLNX), and Taiwan's MediaTek could be among the foreign companies targeted by U.S. chipmakers. Worth noting: Mellanox sells more than just chips, and ARM's business model depends on the company maintaining a neutral status within the industry.

Meanwhile, Nomura's Romit Shah names 15 potential M&A candidates, and divides them into 3 groups: "Sub-scale companies" with high margins and strong IP; "strategic companies" with compelling product lines; and "undervalued companies."

Shah's "sub-scale companies:" IDTI, ISIL, MTSI, MCRL, SMTC, SLAB.

"Strategic companies:" ALTR, AMCC, ATML, CAVM, MPWR, BRCM ($22.5B market cap could make it tough to digest).

"Undervalued companies:" DIOD, IRF, MSCC.