Texas Instruments Inc.'s $1.2 billion bid to acquire power-management specialist Unitrode Corp., while boosting its portfolio in some key areas, may help TI little in its effort to build momentum in the analog market, according to analysts and industry rivals.
TI, which in 1997 gained the top spot in the highly fragmented analog market, is willing to pay a premium for Unitrode on the assumption the deal will protect its leading position, said Dan Scovel, an analyst with Fahnestock & Co. Inc. New York.
"It's not a bad deal, but it could be better," Scovel said. "There is some nice growth potential in the portable space, and that's clearly the gem. But there are also some boat-anchor products that have been holding [Unitrode] back from growing."
Unitrode's strength lies in its power-management portfolio, which it expanded last year with the acquisition of Dallas-based Benchmarq Microelectronics Inc., a leading player in battery-management ICs. "Both companies, however, have products like non-volatile SRAMs, which are going nowhere," Scovel said. "About half the Unitrode business has shown little or no growth, which sort of averages down some of the benefits. ...The other issue is that [$1.2 billion] seems a little rich for a $150 million company."
In its last fiscal year ended Jan. 31, Unitrode reported net income of $8.6 million on revenue of $157.8 million, down from net income of $37 million on revenue of $222 million the prior year. In the first quarter of its latest fiscal year ended May 1, the company reported net income of $6.4 million on revenue of $44.3 million.
"[But] it's about more than revenue," asserted Alun Roberts, TI's marketing director for advanced analog products. "Unitrode has expertise and design skills aimed at some areas we want to get into, and with this acquisition we'll be jumping straight into a market leadership position."
TI believes the acquisition will be of particular value in strengthening its catalog portfolio. Although TI leads the analog segment, it controlled less than 12% of the market in 1998, according to IC Insights Inc., Scottsdale, Ariz., and is battling with about a half-dozen significant competitors.
Indeed, rivals last week said the acquisition may have little or no impact within the overall analog picture. "Our strategy is not changing," said Pietro Menniti, general manager of the industrial and power supply division of STMicroelectronics in Agrati, Italy. "We have a wide portfolio in energy management and many leading customers. We have the right products, right presence, and geographical organization, and I don't see how this agreement will change our business."
Mennita said TI, which has made multiple acquisitions in the last year, may find the task of integrating Unitrode a daunting one, and expected the sale to generate negligible new analog revenue momentum.
ST's power-management devices are used by Nokia in its cell phones, and by Compaq, Dell, and IBM in a range of notebook PCs. Likewise, Unitrode's power-supply control, interface, and battery- management ICs are expected to be increasingly important in portable-equipment markets, which TI also targets with its low-power DSPs.
"We're clear in our objective to grow our analog catalog business [by] targeting the mass market," said Del Whitaker, a TI senior vice president and manager of the company's worldwide analog and logic products. "TI sees increasing opportunity in the battery-management sub-segment, where Unitrode is the recognized leader. In the future, this technology will be needed in digital cameras, Internet audio players, and other emerging products."
The analog market was estimated at $21.6 billion in 1998 by Dataquest Inc., San Jose, with a projected growth rate of 15% for 1999. Catalog products comprise about a third of the analog market. Within the analog spectrum, sales of power-management ICs totaled $2.2 billion in 1998, and the segment is expected to grow to $4.1 billion by 2002.The battery-management business is expected to have an annual growth rate of 32%, according to Venture Development Corp., a research firm in Natick, Mass.
By snatching up Unitrode, TI could put a new set of market forces in play that would stand to help smaller competitors-such as San Jose-based IMP Inc., which racked up $33 million in revenue for its March-ended fiscal year.
"There will be more confusion, more uncertainty, and more disruption," said David Gillooly, IMP's vice president of marketing and sales. "You never know how these mergers will work out. It's a very fragmented marketplace. There is always a niche, some innovation you can bring, or better service. A lot of times the average Joe doesn't get served as well by the big guy as the bigger customers."
With its emphasis on catalog products, TI's assimilation of Unitrode's portfolio could raise some issues within TI's distribution channel, which the company only recently restructured. Currently, Unitrode is represented by only one TI distributor, Arrow Electronics Inc. Other Unitrode distributors include EBV Unique, Future Electronics Inc., and Pioneer-Standard Electronics Inc.
"We're still working on an integration plan, and in the meantime customers should expect business as usual," TI's Roberts said. "All the distributors we don't have will continue to support orders and backlog."
TI plans to issue about 8.9 million shares of stock in exchange for all outstanding shares of Unitrode. The boards of directors of both companies have approved the acquisition, which is expected to conclude in the second half of the year. The acquisition is contingent upon approval by Unitrode stockholders, and following certain governmental reviews.
Unitrode will become a wholly owned subsidiary of TI, operating as part of TI's analog business unit.
Unitrode will continue to operate from its Merrimak, N.H., headquarters, and TI plans to maintain the company's test facility in Singapore, as well as design centers in Dallas; Austin, Texas; San Jose; and Cary, N.C. Unitrode has about 840 employees.