DALLAS With its proposed $1.2 billion acquisition of Unitrode Corp. (Merrimack, N.H.), Texas Instruments Inc. has revealed the scope of its desire to dominate every segment of the analog IC business. Unitrode would provide TI with new strength in power and interface components as well as a hard-to-find infusion of analog engineers, but whether TI will become the 800-pound gorilla of the standard linear market remains to be seen.
With 1998 estimated shipments on the order of $2.27 billion, Texas Instruments is already the world's largest supplier of analog and mixed-signal ICs. This includes both customized, mixed-signal systems-on-chips, such as communications modems and disk-drive ICs and standard linear building-block components. TI was the number one supplier in 1998 for the second consecutive year, according to Dataquest Inc., followed by Philips Semiconductors (with estimated shipments of $1.92 billion) and STMicroelectronics (with $1.848 billion).
But while TI is a major player in almost all analog IC market segments, there are only two segments interface components and mass-storage devices in which it is number one. It is number three behind National Semiconductor Corp. and Analog Devices Inc. in the market for IC amplifiers. And with estimated shipments of $140 million, it is a poor second behind Analog Devices' $419 million in sales of data converters.
In the market for voltage regulators and power-management devices of which Unitrode is a part TI (with $236 million) is a close second behind National Semiconductor (with $288 million) and just ahead of Linear Technology Corp. (with $226 million in 1998 shipments), according to Dataquest estimates. Dataquest had projected a 14 percent annual growth rate for power-management ICs, compared with 10 or 12 percent for other kinds of standard linear components. The market for power-management ICs, now at $2.2 billion, is expected to grow to $4.1 billion by 2002, according to Dataquest.
TI's acquisition of Unitrode an approximately $170 million company with strengths in desktop voltage regulators and SCSI interface controllers can be seen as a maneuver to position TI more firmly in this market. Unitrode's revenues for fiscal 2000 (ended Jan. 31, 1999) were $157.8 million down from $222.04 million in fiscal 1999 and $173.68 million in fiscal 1998. Revenues for the quarter ended May 1 were $44.3 million. The acquisition, based on the issuance of 8.9 million shares of TI stock, is worth approximately $1.2 billion.
"TI paid on the higher end of the range but they got a good company," said Todd Cooper, a securities analyst who tracks power-device markets for Stephens Inc. in Little Rock, Ark. But Steve Orr, vice president at State Street Research (Boston) does not think TI overpaid for Unitrode. "Their margins are growing," he said of Unitrode. Currently at 14 percent, they could be 20 percent in the next year. This could amount to a "neutral-to-positive" impact on TI's income statement in the first part of 2000, Orr said.
The move positions TI more firmly as a supplier of voltage regulators for desktop and portable computers, SCSI interface ICs and portable power products three of the fastest growing markets, Cooper and Orr agreed. "Unitrode's business is approximately 39 percent in power-management devices for servers and higher-end PCs, 20 percent in portable power and the rest in interface components and portables show the fastest growth," Orr said.
Battery-management devices (like smart battery ICs) are expected to skyrocket, according to a study by Venture Development Corp. Unit growth is expected to increase 32 percent per year over the next five years, while revenue growth should increase 27 percent. Unitrode's Dallas-based Benchmarq subsidiary has been a pioneer in the field of smart battery ICs.
Besides Unitrode's power and interface product line, the acquisition would also net TI a talent pool of some 160 people in an industry where analog engineers have traditionally been difficult to find.
TI president and chief executive officer Tom Engibous identified the company's portfolio of catalog analog products as a key area of concern in his conversations with editors and financial analysts in March. Not only would an investment in standard building-block components buffer the company against the economic peaks and valleys inherent in building customized devices for high-volume customers, it would help leverage DSP sales with associated analog parts, he said.
Engibous noted that while TI has nearly a 50 percent market share in DSPs, it has only 12 percent in analog, and less than that in the high-margin standard analog components that are typically sold with DSPs. "Today that attach rate is way too low, but it's a big opportunity for us," he said. "Standard analog products are very high-margin, as high as any semiconductor part."
But acquisitions like that of Unitrode are only one indicator of TI's willingness to invest in analog. The other effort is to increase its portfolio of analog and power-management parts with its own proprietary part numbers. "We don't have the full analog product portfolio that we would like. So we have a lot of effort in developing a portfolio of signal-conditioning and power-management parts," said Engibous in March. TI told analysts then that it expects this year to launch as many as 160 power-management and data-converter parts in its Advanced Analog group, and up to 98 interface products in its Mixed-Signal DSP Solutions unit.
Examples of new proprietary power-management devices include the TPS2216, a third-generation power distribution switch for PCMCIA cards; the TPS73HD3XX family of dual low-dropout regulators (LDOs) for DSP power applications; the TPS283X high-output-current (2-A) MOSFET drivers; the TPS60100/10 "Zero-Ripple" regulated charge pump; and the TPS767XX/TPS768XX 1-A LDO in PMOS.
"We want to grow this business," said Alun Roberts, TI's marketing director for advanced analog. In a previous decade, TI had built its analog parts portfolio by second-sourcing other manufacturers' parts, like those of Linear Technology Corp., Roberts said. But its current mission is to build its own high-margin proprietary part types though never overlooking the value of a strategic acquisition.
Regarding Unitrode, there was very little overlap between the two companies only one device made by both of them, said Roberts. The acquisition brings together strengths from two otherwise independent companies, he said.
Unitrode's management will remain in place while a "transition team" determines the new division of product lines and responsibilities, Roberts said.