Will Xilinx join the M&A party?
On Wednesday (Jan. 20), Xilinx made a filing with the U.S. Securities and Exchange Commission amending its agreements with CEO Moshe Gavrielov and four other senior executives to provide them with more benefits in the event of change of ownership of the company, fueling speculation that the FPGA leader is preparing to be acquired.
Last week, financial news trade publication DealReporter stoked speculation that Xilinx would be acquired by chip vendor Qualcomm Inc. The two companies have been collaborating closely in recent times, announcing last year a deal to work together on heterogeneous computing technology.
Christopher Rolland, an analyst at FBR Capital, wrote in a report Wednesday that the SEC filing by Xilinx increases the chances that Xilinx will be acquired. The filing is similar to one made by Altera Corp. about six months before Intel Corp. initially offered to acquire the company, Rolland said. He added that the filing perhaps lends credence to the DealReporter story.
In a conference call with analysts following Xilinx’ quarterly earnings report Wednesday, Gavrielov described the filing as a mere formality to bring Xilinx in line with other companies in the semiconductor industry and beyond.
“What we are doing is basically aligning the change in control arrangement for the company’s executive management to be in line with those which are common for public companies both in our industry and actually across industries,” Gavrielov said.
He said the filing was made after a recommendation to the board of directors from an external consultant.
“There is clearly massive consolidation which is happening in the semiconductor world and the general expectation is that will continue,” Gavrielov added. “Having said that, we really don’t comment on market speculation or rumors and there have been numerous ones.”
A takeover of Xilinx (San Jose, Calif.) by Qualcomm (San Diego) would be notable against the backdrop of massive consolidation which is taking place in the semiconductor industry.
Last year, total value of semiconductor industry acquisitions announced topped $105 billion, more than eight times the average annual value of acquisitions by semiconductor companies over the previous five years, according to market research firm IC Insights Inc.
Altera, Xilinx’s smaller rival in the programmable logic space, was swallowed by Intel in a $16.7 billion deal that closed late last year. Intel has said it expects the acquisition to lead to the creation of processors that incorporate FPGA technology that will be used in the data center and Internet of Things (IoT) market segments.
“It makes sense that Qualcomm might be looking to match Intel’s purchase of Altera,” said Rob Lineback, senior market research analyst at IC Insights, in an email exchange with EE Times.
Lineback said Intel plans to eventually integrate FPGAs on its processors for the IoT and that the company expects to sell more server processors co-packaged with FPGAs. The first Altera FPGAs packaged with x86 server processors are slated to be sampled in in the first quarter of this year, with volume shipments expected to begin next year, Lineback noted.
“Qualcomm’s efforts to get its SoC processors into embedded systems—IoT, drones, wearables—and servers would mean programmable logic will be needed, especially if Intel is doing that,” he said.
But Rich Wawrzyniak, a senior analyst for ASICs and SoCs at Semico Research Inc., said he believed it is unlikely that Qualcomm would be interested in acquiring Xilinx because the purchase price would likely be similar to what Altera got from Intel.
“If they just want to buy a company that’s growing, okay,” Wawrzyniak said. “Then it comes down to what the price is.”
Xilinx has a market capitalization of about $12 billion based on its current share price. Wawrzyniak said the purchase price for acquisition would likely require a premium, placing the price tag for the company in the realm of $16 billion, Wawrzyniak estimated.
Qualcomm, the world’s third-largest chip vendor, had sales of more than $25 billion for its most recent fiscal year, which closed last September. Xilinx had sales of about $2.4 billion for its most recent fiscal year.
Qualcomm declined to comment on the speculation through a company spokeswoman.
On Wednesday, Xilinx reported sales of $566 million for its most recent fiscal quarter, which closed in mid December, up 7% compared with the previous quarter but down 5% compared with the year-ago quarter. The company reported a net income of $131 million for the quarter, up 3% compared with the previous quarter but down 22% compared with the year-ago quarter.
Xilinx said new product revenues were up 18% compared with the previous quarter.
For the current quarter, which closes March 16, Xilinx said it expects sales to be roughly flat sequentially.