Skyworks Solutions to acquire Silicon Labs’ infrastructure and auto units for $2.75 billion

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Skyworks Solutions tops earnings estimates.
Image: Skyworks Solutions

Skyworks Solutions announced it would purchase Silicon Labs’ infrastructure and automotive divisions for $2.75 billion. The chipmaker believes the deal will boost and diversify its revenue and give it access to $20 billion in market opportunities. The firm is paying the sale with cash on hand and debt financing organized by J.P. Morgan.

The transaction, Skyworks’ largest-ever acquisition, involves the transfer of proprietary technology and 350 employees.

The Irvine, California-based company expects its arrangement to be complete by the third quarter of this year, regulatory approval permitting.

Why Skyworks Solutions is Buying Silicon Labs’ Auto and Infrastructure Units

Skyworks made a multibillion-dollar deal to expand its market presence to ensure its future success.

Although it is a successful semiconductor manufacturer, its business is not diverse. According to the Wall Street Journal, it derived 56 percent of its earnings from selling smartphone components to Apple in the previous fiscal year. That relationship helped the company earn a record $1.5 billion in Q1 2021. But it makes the provider overly reliant on one client.

Moreover, Apple has increasingly signaled that it wants to bring most of its hardware development work in-house. The corporation designs its mobile device and computing processors and acquired Intel’s handset modem assets for $1 billion. It also reportedly sought to buy Broadcom’s RF chip unit in 2019 for a rumored $10 billion.

Apple’s push to consolidate its supply chain could become a major problem for Skyworks in the next few years. But its new purchase will lay the groundwork for it to thrive with or without the iPhone maker.

High Growth Potential

The acquiring corporation said it would utilize Silicon Labs’ technology and personnel to pursue a larger position in the 5G equipment, electric car, and data center sectors. The firm is shrewd to expand its position in those particular segments, given their high growth potential.

For instance, MarketWatch estimates demand for fifth-generation networking gear will expand by 48 percent annually through 2028. Along similar lines, MarketsandMarkets anticipates the EV segment will experience a compound annual growth rate of 21.1 percent into 2030. And analysts forecast the U.S. online services industry will be worth $104 billion in five years.

Karl Ackerman, a senior research analyst with Cowen, explained the deal is an especially smart move for Skyworks. He noted Silicon Labs has operating margins of around 40 percent and should add 5 percent to the purchaser’s bottom line by year’s end. In other words, the transaction should be good for the buyer in the near and long term.

In addition, Skyworks is making a very pragmatic business decision given the tense status of global political relations. Since Silicon Labs is based in Austin, Texas, it can sell its infrastructure and automotive units without foreign regulatory approval. While there is no guarantee the transaction will move forward, its lack of international complications is a positive.

Also, over $118 billion of semiconductor industry mergers and acquisition announcements were made last year. All that consolidation could create an environment where smaller firms struggle to gain traction again larger providers. However, Skyworks’ $2.75 billion expansion will make it a more competitive entity.

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