MAXLINEAR BETTING BIG WITH $3.8B DEAL

Company aims to expand market with acquisition, but investors appear wary

Carlsbad semiconductor outfit MaxLinear said Thursday that it has inked a deal to buy memory processor firm Silicon Motion Technology for $3.8 billion in stock and cash.

The transaction, which MaxLinear

called transformational, would diversify its business and double its potential market to $15 billion. It also would provide needed scale and supply chain inf luence in a tight semiconductor market, as well as immediately increase adjusted earnings per share and cash flow upon closing.

“The enhanced scale of the combined organization creates a new, significant, $2 billion-plus (annual revenue) player in the semiconductor industry with compelling positions across a diversified set of end markets,” said MaxLinear Chief Executive Kishore Seendripu.

But it also would expose the company to the more volatile consumer electronics market. MaxLinear’s shares plunged after the deal was announced, ending trading Thursday down nearly 17 percent at $44.68 on the New York Stock Exchange.

Today, MaxLinear’s mixed-signal radio frequency processors are used mostly in wired and wireless broadband infrastructure and other behind-the-scenes gear.

Silicon Motion supplies NAND flash memory and solid-state storage controller chips for smartphones and notebooks, as well as other markets including data centers.

While the deal makes financial sense, it is harder to see the advantages strategically, said Christopher Rolland, an analyst with Susquehanna Financial Group, in a research report.

“For us, the biggest hurdle is the addition of a consumer business

which is very different from MaxLinear’s infrastructure/ enterprise businesses today,” he said.

MaxLinear compared the deal to its successful acquisition of Intel’s Home Gateway business for broadband cable. But Rolland said he views “this as a different animal and significantly more complex.”

Silicon Motion has significant sales for storage controllers in notebooks. Rolland expects demand for notebooks to slow in the second

half of the year, hurting the company’s growth trajectory.

“But MaxLinear did not overpay for the asset, so much so that these headwinds are likely in the valuation,” he said. “Overall, we like the deal long term, but we note investor concerns around growing back-half risks in the consumer market.”

Based in Taiwan, Silicon Motion’s revenue increased 71 percent last year to $922 million. The company was profitable.

MaxLinear’s revenue grew 86 percent to $892 million last year. It posted a $42

million profit.

MaxLinear will pay $93.54 in cash and 0.388 shares of MaxLinear common stock for Silicon Motion. That represents a 48 percent premium over Silicon Motion’s stock price on April 22, when news reports circulated that the company might be acquired.

The two companies will reach $100 million in annual cost savings within 18 months of the deal closing. It would have a portfolio of 4,000 patents and 3,000 employees.

The buyout is forecast to close by the first half of 2023, pending regulatory approvals. Some analysts have speculated that there could be rival bids. If MaxLinear walks away from the deal, it faces a $160 million break-up fee, while if Silicon Motion accepts a better offer, it owes MaxLinear $132 million.

“Combining Silicon Motion with MaxLinear creates significant economies of scale, accelerates our expansion into enterprise storage markets and unites unparalleled intellectual property to continue serving our customers,” said Silicon Motion Chief Executive Wallace Kou in a statement.