TI's $7.6 billion purchase of Burr-Brown Corp. in June 2000 and the acquisition of Unitrode Corp., one year earlier, made the company a stronger competitor in the analog IC business, and formed the bedrock of its current leadership of the sector. Recent acquisitions have been much smaller, including the January 2006 purchase of ChipCon Group, a Norwegian short-range, low-power wireless RF semiconductor vendor, for $177 million.
"We really began an intense effort in the analog world in the early 2000 period when we began a series of acquisitions that formed the foundation of our analog business," Lowe said. "What we've been able to do over that time period is carve out a relatively solid position. I think we can clearly state that the Burr-Brown acquisition was transformational for the company and it was done so successfully that it has become the basis for what's driving the entire company."
A few analysts panned the Burr-Brown deal, but most have come to accept that the transaction "has paid off handsomely for the company," according to Databeans' Inouye. The researcher estimates TI's share of the analog IC market was 14.1 percent in 2008, down slightly from 14.4 percent in 2007, followed by ST with 10.9 percent and Infineon at 7.8 percent. Other companies in the top five ranking include ADI and NXP, which had 6.4 percent and 6 percent market share, respectively.
Combined, the top five analog IC manufacturers control 45 percent of the market. The analog IC sector is so fragmented that mosts suppliers identified in Databeans' ranking have fractional market share and minuscule sales, ranging from NJR's and International Rectifier's $318 million and $263 million, respectively, to Vishay Intertechnology's $25 million and Exar's $24 million.
Due to the fragmented nature of the analog market, industry executives and analysts have concluded the sector is due for consolidation, saying they expect mergers and acquisitions to increase in coming years, especially now that valuations have fallen sharply. However, acquisitions would be unlikely among the top 10 companies, according to Inouye.
"The strategy for TI would be to acquire a company that's got something other than what they already offer," Inouye said. "They can gain market share through internally developing new products that are targeted towards emerging markets, alternative energy, power management and new business to be obtained from sources outside of the mobile phone space."
Despite the obvious lack of enthusiasm among analysts for a large acquisition in the analog area, TI may eventually be compelled to examine the case for a major transaction that could involve gobbling up a top rival. Although most observers continue to think of TI as a DSP vendor, the company's biggest revenue contributor is the analog business, which in 2008 accounted for about 40 percent of its revenue.
"TI's analog business has always been more profitable than the DSP business," said Forward Concept's Strauss. "The dirty little secret at TI is that every time they sell a DSP product, they sell two and a half times more analog products."
Furthermore, the analog business represents the greatest growth opportunity for TI. With the growing need for analog applications, the company has committed to increasing investment in analog technology. In 2008, TI's analog division recorded sales of $4.86 billion, down slightly from $4.93 billion in 2007. The unit recorded an operating profit of $1.1 billion, or about 43 percent of company-wide operating profit of $2.5 billion. However, operating profit in the analog division fell from more than $1.6 billion in 2007.
The ongoing weakness in the global economy is likely to further hit TI's overall operation in 2009, leading the company to take more aggressive steps both to reduce operating costs and improve its market position in the analog and embedded product segments. TI's revenue and operating performance "will meaningfully deteriorate, driven by the continuation of broad-based macroeconomic weakness through at least 2009," said Jason Pompeii, an analyst at Fitch Ratings Agency.
"Fitch also believes TI remains positioned to gain modest share in the analog and embedded markets, driven by its greater scale in these areas," Pompeii said.
If it wants to gain even greater scale, TI might have to bite the bullet and explore the possibility of buying one of its closest analog rivals. There's a long list of possible acquisitions, but does TI and the industry have the will or the appetite for such a deal?