2015 already a record year for chip sector M&A

Published Mon, Sep 21 20155:24 PM EDT

Merger and acquisition activity in the semiconductor industry has already set an annual record in 2015, more than doubling the amount of dealmaking in the space in all of last year. The latest linkup was U.K.-based Dialog Semiconductor 's almost $5 billion deal for Atmel of San Jose, California, announced Sunday. Investors want to know why the M & A mania is happening and what deals may be next. CNBC Pro reached out to expert semiconductor industry analysts to find the answers. Announced global semiconductor merger and acquisition volume already totals $104.7 billion for 2015 year to date, compared with $46.3 billion in 2014, according to Dealogic. The two previous peaks were $70.3 billion in 2000 and $75.2 billion in 2006. Analysts believe the dealmaking surge is due to slowing growth rates and maturing markets. "The recent M & A is a consequence of an industry maturing, where it is harder to find growth. To that end, many of the larger recent deals (NXPI/FSL, AVGO/BRCM and today's Dialog/Atmel) have been justified by a search for scale, diversification and cost synergies," said Bernstein's Stacy Rasgon in an email. Read More Nvidia gaming power separates it from semi slump Worldwide smartphone shipment growth is expected to slow to 10.4 percent year over year in 2015 from the 27.5 percent growth in 2014, according to IDC. Things are worse for the PC market with shipments estimated to fall 4.4 percent in 2015 compared with flat growth in 2014, according to Gartner. "Very few companies now have the scale and scope to compete in a low-growth market. You can't be a single product company anymore. You have to deliver a complete solution. There are fewer large market opportunities and tier two, tier three companies are left fighting for the crumbs," said Ashok Kumar of Aegis Capital. Kumar believes Cavium , Lattice Semiconductor and Marvell Technology Group are ripe for takeouts. So a booming merger and acquisition market for semiconductors could actually be a long-term negative for the industry's shares as it shows companies are forced to sell themselves because they can't compete in a world of low growth. Also, the last time M & A surged in the chip space was 2000 and 2006, tops for the market and the group's stocks. "And yes often consolidation marks the top of the market ... (it) reaches an unsustainable run rate, but the market ascribed a takeout premium and multiple regardless. Then when the pace of M & A regresses to the mean, that multiple comes out of the stock price," said FBR's Christopher Rolland in an email. Read More Is the thrill gone for Apple investors? So investors may want to keep their holding period pretty short if they are going to play the takeover trend. Rolland's list of top acquisition candidates includes Lattice Semiconductor, Cavium, Applied Micro Circuits , ARM Holdings and Marvell Technology Group he said in a note to clients. CNBC Pro reached out to all companies mentioned as takeout candidates above for comment, but none immediately responded.

Technician working with silicon wafers in a high tech lab.

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Merger and acquisition activity in the semiconductor industry has already set an annual record in 2015, more than doubling the amount of dealmaking in the space in all of last year.

The latest linkup was U.K.-based Dialog Semiconductor's almost $5 billion deal for Atmel of San Jose, California, announced Sunday.

Investors want to know why the M&A mania is happening and what deals may be next. CNBC Pro reached out to expert semiconductor industry analysts to find the answers.

Announced global semiconductor merger and acquisition volume already totals $104.7 billion for 2015 year to date, compared with $46.3 billion in 2014, according to Dealogic. The two previous peaks were $70.3 billion in 2000 and $75.2 billion in 2006.