What Will TI-NSM Acquisition News Mean for Semiconductor Sector?

National Semiconductor stock skyrocketed April 4 on some important news: After the market closed, Texas Instruments announced it had agreed to buy Santa Clara, CA-based National Semiconductor (NSM) for $6.5 billion cash  (http://www.computerworld.com/s/article/9215480/TI_buys_National_Semiconductor_for_6.5B). The $25-a-share offering price was a more than 77 percent premium on NSM’s $14.07 closing price April 4, boosting the market price up $10.20 in after hours trading to more than $24.

National Semiconductor makes analog integrated circuits and “will bring 12,000 analog products into the Texas Instruments portolio,” according to Computerworld, adding that analog semiconductors convert analog data into digital signals for smartphones, PCs and other devices.

Many experts predict this acquisition could signal a market contraction and consolidation which could affect many other companies in all parts of the semiconductor industry. Some of the larger names cited as potential targets include Linear Technology and NXP Semiconductor, companies with $7.6 billion and $8 billion market capitalizations, respectively. The Philadelphis Semiconductor Index was up 2.3 percent on the news.

Perhaps some of the small cap stocks in the sector could also be consolidation targets. It’s difficult to predict which ones, but here are four smaller companies in the periphery of the semiconductor industry.

Danbury, CT-based ATMI Inc (Nasdaq:ATMI, http://www.atmi.com/) supplies materials and materials delivery systems with applications in the semiconductor, flat panel display and life sciences industries. The company stock did not respond to the acquistion news and was up only 3 cents, to $18.41 on April 5. The stock is trading near the top of its 52-week range of $12.13-$22.05 and was named one of “four top stocks worth investigating” by Seeking Alpha in March, citing research done by Zachs.

Chandler, AZ-based Amkor Technology (Nasdaq:AMKR, http://www.amkor.com/) is part of the semiconductor supply chain and provides outsourced semiconductor packaging and test services in the U.S. and internationally. (Its $1.2 billion market cap puts it at the high end of our smallcap niche). The stock is currently trading at about $6.75, at the lower end of its 52-week range of  $5.05-$8.81 and there is some concern that its operations have been seriously affected by the recent earthquake and tsunami problems in Japan. The company reported that a facility was damaged but no doubt this is a story worth watching…

Beverly, MA-based Axcelis Technologies Inc. (Nasdaq:ACLS, http://www.axcelis.com/) designs, manufactures and services processing equipment used in the fabrication of semiconductor chips in the U.S., Europe and the Pacific Rim. A Seeking Alpha post in March named ACLS as one of eight undervalued stocks with big upside potential,  noting its low price/sales ratio of 0.84. Its stock price more than doubled from a low of $1.35 last September to $3.60 in late December but has been sliding since. It currently trades for about $$2.50.

Billerica, MA-based Entegris Inc. (Nasdaq:ENTG, http://www.entegris.com/) makes products and materials used in processing and manufacturing in the semiconductor industry. The company received a mention in Barron’s April 2 in an article about the Needham Growth Fund, which has been buying ENTG because “the company has $1 per share of cash and has paid down debt.” If it were a consolidation target, all the better. The stock is currently trading at $8.35.

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RFID — TI Layoffs, Animal Tags Charge Ahead

In manufacturing news Tuesday, Dallas-based Texas Instruments (NYSE: TXN, http://www.ti.com ). one of the leading manufacturers of Radio Frequency Identification technology (RFID), announced that it would be eliminating 3,400 positions, but said that it is not withdrawing from the business.  TI will continue with its asset tracking, livestock and automotive sectors, and says that their customers will not feel the impact.  TXN shares closed yesterday at $16.02, just under half their 52-week high of $33.00.

Given their already-low share prices, that news didn’t seem to impact companies who are manufacturing RFID technology for use in livestock tracking.  And more than ever, there is an explosion of marketers and distributors offering RFID technology. However, it appears that not all cattleman share the same enthusiasm for incorporating the RFID technology into their programs, and the progression of a national system has slowed as technical and political issues have surfaced.

In 2003 Kansas State University (KSU) began conducting a cooperative project with the USDA Animal and Plant Health Inspection Service (APHIS, http://www.aphis.usda.gov/) to evaluate these technology issues and provide producers with an unbiased database of performance results for RFID manufacturers and their products.

One such manufacturer, South St .Paul-based Digital Angel (Nasdaq: DIGA,  http://www.digitalangel.com/), now offers ranchers and other producers of livestock a new tool for tracking locations of animals in real time with greater precision.  The Minneapolis Star-Tribune covered the product introduction this week: http://www.startribune.com/business/38719137.html?elr=KArks7PYDiaK7DUdcOy_nc:DKUiD3aPc:_Yyc:aUU

DIGA shares closed yesterday at $0.56, down from a 52-week high of $7.68. Current market cap is just under $9 million with an estimated 2008 revenue of about $78 million. Current estimates at http://www.thecattlesite.com and  http://www.thepigsite.com are for larger livestock herds and lower feedstock prices in 2009, both in the USA and Canada.

Digital Angel announced that their battery-powered animal ID tag, known as the “r.Tag,” can be read from 100 feet away, and allows more efficient, accurate livestock tracking than is presently available using other tags.  The contrast to previous tags is striking, because in order to read older tags, a reader had to be within inches of the animal, which meant that all animals had to be herded down an extremely narrow chute whenever they were to be counted.And even then animals could only be identified one at a time.  With the new r.Tags, animals can be recognized in groups a third of a football field away.  

The new battery-active tags are weatherproof, and each interrogator is powered by a small solar panel that charges an onboard battery so the reader can operate for up to two sunless weeks.

 Although APHIS does not require the use of RFID for tracking livestock, it does recommend the technology as a part of the National Animal ID System, a voluntary tracking system.

Other manufacturers using RFID technology to track livestock include Dallas-based Allflex (http://www.allflexusa.com) and Farnum Ztag Products (http://www.farnamlts.com/), both privately held companies.

Dale Blasi, who heads the KSU project, said that “there are good products out there, new products yet to be tested, and products that need to be removed from the supply chain.”