Stock Name: UNISEM
Company Name: UNISEM (M) BHD
Research House: RHB
Semiconductor sector
Maintain neutral: Texas Instruments (TI) will acquire National Semiconductor Corp (NS), a semiconductor producer that specialises in analogue devices, for US$6.5 billion (RM19.7 billion) in cash. This follows its second acquisition within a year after purchasing two fabrication plants in Japan from Spansion Inc.
While TI is already the world's biggest analogue player (15% of global market share), the acquisition could further boost its market share substantially with NS' 3%. This implies that TI could control at least 18% of the global analogue market. In addition, this may also elevate TI to the third position among the global semiconductor players after Intel Corp and Samsung Electronics.
The acquisition could also see a change in the competitive landscape of the analogue market. Currently, TI's closest competitors, Analog Devices Inc and Maxim, each holds 6% market share, less than half of TI's implied market share. Therefore, we believe this could lead to further M&A as other major players seek to consolidate market share.
Given that NS is currently not a customer of Unisem (M) Bhd and Malaysian Pacific Industries Bhd (MPI), we believe the takeover could translate into higher volume loading for the two packaging players from TI, which is an existing customer. Note that Unisem and MPI's current product range includes analogue and power management chips ' QFN and X-3 MLP (transient voltage suppression technology).
Similarly, this could encourage Unisem and MPI to diversify into the higher-margin industrial segment as TI could gain a stronger foothold in the industrial segment given that NS specialises in the industrial market with 46% of total revenue in FY10 (against 14% of total revenue for TI). Note that Unisem and MPI produce around 12% to 15% of their chips for the industrial segment.
Risks to our view include: (i) weaker-than-expected economic recovery; (ii) strengthening of ringgit against the US dollar, and (iii) higher raw material cost.
While we highlight that the consolidation of TI and NS could be positive for the semiconductor industry, in particular for third-party packaging and assembly houses, we are keeping our forecasts for Unisem and MPI until the effects of the takeover filter into the market.
We reiterate our 'neutral' call on the sector with a positive bias, as we believe the semiconductor sector remains on track for stronger growth, underpinned by the pick-up in demand from the US and European Union in addition to the robust demand from Asia-Pacific. Our pick for the sector is Unisem ('outperform'; fair value, RM2.65). ' RHB Research, April 12
This article appeared in The Edge Financial Daily, April 13, 2011.
Company Name: UNISEM (M) BHD
Research House: RHB
Semiconductor sector
Maintain neutral: Texas Instruments (TI) will acquire National Semiconductor Corp (NS), a semiconductor producer that specialises in analogue devices, for US$6.5 billion (RM19.7 billion) in cash. This follows its second acquisition within a year after purchasing two fabrication plants in Japan from Spansion Inc.
While TI is already the world's biggest analogue player (15% of global market share), the acquisition could further boost its market share substantially with NS' 3%. This implies that TI could control at least 18% of the global analogue market. In addition, this may also elevate TI to the third position among the global semiconductor players after Intel Corp and Samsung Electronics.
The acquisition could also see a change in the competitive landscape of the analogue market. Currently, TI's closest competitors, Analog Devices Inc and Maxim, each holds 6% market share, less than half of TI's implied market share. Therefore, we believe this could lead to further M&A as other major players seek to consolidate market share.
Given that NS is currently not a customer of Unisem (M) Bhd and Malaysian Pacific Industries Bhd (MPI), we believe the takeover could translate into higher volume loading for the two packaging players from TI, which is an existing customer. Note that Unisem and MPI's current product range includes analogue and power management chips ' QFN and X-3 MLP (transient voltage suppression technology).
Similarly, this could encourage Unisem and MPI to diversify into the higher-margin industrial segment as TI could gain a stronger foothold in the industrial segment given that NS specialises in the industrial market with 46% of total revenue in FY10 (against 14% of total revenue for TI). Note that Unisem and MPI produce around 12% to 15% of their chips for the industrial segment.
Risks to our view include: (i) weaker-than-expected economic recovery; (ii) strengthening of ringgit against the US dollar, and (iii) higher raw material cost.
While we highlight that the consolidation of TI and NS could be positive for the semiconductor industry, in particular for third-party packaging and assembly houses, we are keeping our forecasts for Unisem and MPI until the effects of the takeover filter into the market.
We reiterate our 'neutral' call on the sector with a positive bias, as we believe the semiconductor sector remains on track for stronger growth, underpinned by the pick-up in demand from the US and European Union in addition to the robust demand from Asia-Pacific. Our pick for the sector is Unisem ('outperform'; fair value, RM2.65). ' RHB Research, April 12
This article appeared in The Edge Financial Daily, April 13, 2011.
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