Silicon Laboratories Inc. is considering the sale of its analog semiconductor segment for between $3 billion and $5 billion, reports Bloomberg.
The fabless chipmaker has not finalized its decision or publicly commented on the article. The firm will focus its efforts on growing its presence in the IoT market if a sale occurs.
In the current global semiconductor marketplace, business unit divestment would definitely serve its interests.
Background on Silicon Labs
Silicon Labs began its life as a mixed-signal integrated circuit provider in 1996. Founded by three semiconductor veterans, the startup understood the complexities of transforming design concepts into viable products. That expertise enabled the small firm to land contracts with large corporations like Intel and Motorola before its fifth anniversary.
In 2000, Silicon Labs went public via a $99.7 million initial public offering.
Unfortunately, the firm took that important step right as the dot com bubble began to burst. However, its engineering capability and strong culture helped it endure market correction that ravaged the tech sector. Instead of collapsing, it delivered on its early promise by tailoring its output to address demand in rapidly growing sectors such as the automotive and human interface fields.
In 2012, the firm decided to make IoT the bedrock of its business. The pivot proved highly successful as its focus on microcontrollers, sensors, and RF components greatly bolstered its revenue generation. It made $886.7 million in 2020, an improvement of 10 percent year-over-year.
Bloomberg notes the chipmaker now derives 60 percent of its annual revenue from connected device sales.
Why Silicon Labs Would be Smart to Sell its Analog Chip Business
Corporate reorganizations always come with risk, but there are compelling reasons for Silicon Labs to divest its analog component business.
First, the IoT semiconductor segment, worth an estimated $12.1 billion last year, is a market with major growth potential. Mordor Intelligence, a research organization, estimates the IoT chip sector will experience a compound annual growth rate of 13.2 percent through 2026. In addition, MarketsandMarkets found the coronavirus pandemic had the effect of increasing demand for contactless payment, healthcare, and wearable solutions.
For Silicon Labs, the IoT sector represents a pathway to expand its income significantly.
Second, the firm would benefit tremendously from securing a multi-billion dollar capital infusion. The semiconductor business is an expensive one, and it underwent massive consolidation last year. To remain competitive, the company will need to ramp up its R&D spending, and a unit sell-off would provide the cash needed to further that goal. It would also keep the firm from taking on profitability hampering debt.
And third, Silicon Labs probably will not have a hard time finding a motivated buyer for its mixed-signal segment. In 2020, several large semiconductor corporations snapped up their smaller contemporaries to improve their respective market positions. Texas Instruments, Analog Devices, and Infineon Technologies might be willing to make larger than normal expenditures to acquire some well-regarded analog IC assets.
With those factors in mind, it would not be surprising to see Silicon Labs announce a sale in the near-term. If that happens, the firm will become a much more important player in the global IoT industry.