Time for PMC-Sierra to Cash in Its Chips: Tara Lachapelle

If there were ever a time for a chipmaker to try to sell itself, it’s now.

PMC-Sierra, a floundering chipmaker based in California, has hired a financial adviser to find a suitor, Bloomberg’s Alex Sherman, Ian King and Matthew Campbell reported Thursday. The company is valued at $1.4 billion.

This comes as chip, or semiconductor, mergers have surged to rarefied levels. The $74 billion worth of transactions already trumps the amount in the past four years combined. One merger -- Avago Technologies and Broadcom, worth about $30 billion at the time of announcement -- set a record for the entire technology industry.

Of course, this late in the game, the list of potential PMC acquirers is shorter than it once was. Avago has barely started to digest its big deal. NXP Semiconductors said in March that it is buying Freescale for about $16 billion, including net debt, so cross that one off. And Intel, the somewhat deal-shy industry heavyweight, made a $14 billion acquisition of Altera in June.

But it’s not a waste of effort to have some bankers search around and see if its shareholders could get a takeover premium. It’s better than watching the stock fall, as it has been.

Before the Bloomberg News report, PMC had lost 26 percent this year. Revenue is projected to be down again this year, following declines in 2013 and 2012. And while the company is profitable, its margins are among the industry’s smallest, according to data compiled by Bloomberg.

Benchmark’s Gary Mobley, who covers chipmakers, says that companies looking to add chips for enterprise and data-center storage applications would take an interest in PMC.

That would include the likes of Avago. While it’s probably a bit too soon for Avago to do another deal, the company did say on the day of the Broadcom deal that it has capacity for more.

Marvell Technology probably would have been the most likely suitor, but now it’s not in a position to bid. The $4.6 billion company is grappling with an internal investigation of its accounting, and its stock has tanked.

Other big players are Western Digital and Seagate Technology, and both had a fair amount of cash as of July. Cash and near-cash items totaled about $5 billion for Western Digital and about $2.5 billion for Seagate. Western also just got a big investment from China’s Tsinghua University, funds that could be used for acquisitions. (Some analysts have pegged Sandisk as the most likely candidate for Western, though.)

If PMC’s bankers can persuade one of these companies to make an offer, then PMC should take it while there’s still appetite for big chip deals.

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