Diodes Incorporated (DIOD) recently announced that it will acquire BCD Semiconductor Manufacturing Limited (BCDS), an analog chip maker, for $151 million or $8 per ADR (American depository share).
The decision to acquire BCDS is perceived as the company’s strategy to expand its power management products range and strengthen its position in Asia. On the flipside, net income of Diodes has declined more than 50% in the first nine months of 2012. Consequently, the acquisition is likely to reduce its liquidity in the short-term and will continue to drag down its earnings until it is completely integrated with the company.
BCD Semiconductor possesses an existing line-up of solid standard Linear and Power Management products and AC to DC solutions for Switch-Mode Power Supply charger and adaptor. The company has an extensive development team in China with a very strong local market position coupled with a cost effective wafer fab capability and capacity.
The acquisition is likely to provide synergistic benefits to Diodes by expanding its footprint in the broader Analog market and extend its product offerings. The recent acquisition is in line with Diode’s strategy for inorganic growth. At the same time, the merger will be beneficial for both the companies as it provides operational synergies with an expanded customer base and cost saving opportunities.
Diodes designs, manufactures, and supplies application specific standard products in the discrete, logic, and analog semiconductor markets primarily in Asia, North America, and Europe. The company primarily serves the consumer electronics, computing, communications, industrial, and automotive markets.
Diodes currently has a Zacks #4 Rank, which translates into a short-term Sell rating. We have a long-term Neutral recommendation on the stock. One of its competitors, Fairchild Semiconductor International Inc. (FCS) carries a Zacks #3 Rank, which translates into a short-term Hold rating.
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