Infineon Sits on $3 Billion Acquisition Cash as Biggest Rivals Don’t Tempt
Infineon Technologies AG (IFX), flush with as much as $3 billion in cash for acquisitions, is struggling to find an attractive target that would boost its most profitable business, power semiconductors.
“We want technology and intellectual property that is complementary to our own and these companies aren’t very exciting investments,” Arunjai Mittal, head of Infineon’s Industrial & Multimarkets division, said in an interview at the headquarters of Europe’s second-largest maker of semiconductors in Neubiberg, Germany.
Mittal was referring to the nine other companies in IMS Research Data’s top 10 ranking of global power semiconductor makers, including Toshiba Corp. (6502), STMicroelectronics NV (STM), Vishay Intertechnology Inc. (VSH), International Rectifier Corp. (IRF), Fairchild Semiconductor International Inc. (FCS) and Renesas Electronics Corp. (6723)
Infineon, which in July raised its full-year sales forecast, has benefited from surging demand for chips used in energy and consumer-electronics products as well as in cars. Chief Executive Officer Peter Bauer has said he’s most interested in purchases that would boost the power, power- conversion and power-management operations of Mittal’s division. Such chips are used in trains, windmills, lighting, mobile phones and games consoles.
“Experts tell us that 85 percent of M&A deals, particularly when a public company buys a public company, fail,” Mittal said. “These companies often don’t offer the uniqueness that would make it worth it,” unless the target’s share price is “wrong” and Infineon’s share price is “right,” Mittal said, explaining why Infineon has been “on the fence” until now.
Infineon shares trades at about 10.2 times earnings, compared with a median of 9.55 for the publicly listed companies in IMS Research’s ranking of the 10 largest power-chip companies, according to Bloomberg data.
“It’s difficult for them to find attractive technology or additional complementary technology as they already have a very broad product portfolio and also for the next generation of products they are well positioned,” Guenther Hollfelder, an analyst at UniCredit in London, said via phone. “They’ll probably become more active in share buybacks.”
Infineon fell as much as 23 cents, or 3.7 percent, to 6 euros and was down 2.5 percent to 6.08 euros as of 10:46 a.m. in Frankfurt. Before today, the stock had dropped 11 percent this year, compared with a 14 percent decline in the 25-company Stoxx 600 Technology Index. The chipmaker has a market value of 6.6 billion euros.
Mittal said he would need to be “very sure” about the strategic benefits to pay as much as the 78 percent premium that U.S. rival Texas Instruments Inc. (TXN)’s agreed for National Semiconductor Corp. (NSM)
Texas Instruments, the second-largest U.S. chipmaker, agreed in April to buy National Semiconductor for about $6.5 billion to add higher margin analog semiconductors.
The part of the power semiconductor market in which Infineon competes was worth $15.8 billion in 2010, according to IMS Research. Last year, Infineon had the biggest piece of that total at 11.2 percent, ahead of Toshiba’s 6.8 percent.
“The gap to number two is so large now that they would have to invest so much it would be nearly impossible for them to catch up quickly,” Mittal said. “We have at least two years’ lead.”
Researcher IHS iSuppli predicts that semiconductors specifically made for power management will grow 13.4 percent this year for revenue of $35.3 billion, on rising demand for energy-efficient consumer devices and industrial equipment. Over the next five years, the power chips market will grow 10.2 percent, the researcher said.
Infineon predicts Mittal’s IMM unit, which contributes about 45 percent of total revenue, will grow by more than 10 percent annually, compared with about 10 percent for the automotive unit and about 5 percent to 7 percent for chip card and security.
Mittal also said he’s not concerned about the impact of the current economic woes as the sovereign debt crisis battered Europe and global markets. Researcher Gartner Inc. slashed its forecast for worldwide semiconductor sales Sept. 15, predicting they will drop 0.1 percent this year, citing excess inventory and slowing demand and a worsening economic outlook. It previously forecast a 5.1 percent rise.
“We’re on the right path and there is nothing to be concerned about, unless another Lehman Brothers type of event happens,” Mittal said. Capacity utilization at Infineon is still “very high” and if a customer didn’t place an order in the last three months, it would be impossible for the company to deliver within three months, he said.
“In any case I would expect my division’s business to grow twice as much as the GDP.”