Qorvo, Inc. QRVO recently inked a deal to acquire Active-Semi International, Inc. with an aim to strengthen its portfolio of programmable analog and mixed signal power offerings.
However, the terms of the deal have been kept under wraps. Nonetheless, management intends to divulge details about the latest development in its upcoming quarterly earnings release.
Post acquisition, financials of Active-Semi will be reported under Qorvo’s Infrastructure and Defense Products (IDP) operating segment.
Active Semi is a private company primarily engaged in providing fabless analog and mixed-signal integrated circuits or ICs which can be utilized in complex motor control and power management applications.
The company anticipates concluding the buyout, awaiting customary closing conditions, as early as Jun 29, 2019. Active-Semi acquisition is projected to be accretive to non-GAAP earnings and non-GAAP gross margin within the first year.
Coming to price performance, shares of Qorvo have gained 4.8% in the past year against the industry’s decline of 7%.
Exploring the Facets of the Deal
Qorvo has expanded its end-markets beyond mobile devices strategically to cater to high growth sectors. The latest deal is in sync with the company’s business goals.
With expanded product portfolio, the company is well poised to expand foothold in high growth automotive, 5G network infrastructure, aerospace/defense and IoT markets, to name a few.
Qorvo pursued the deal on account of Active-Semi’s strength in power efficient analog and mixed signal solutions that enable users to accelerate time to market and reduce total cost of ownership. In fact, the company expects the buyout to bolster its addressable markets by approximately $3 billion.
Notably, per a report from Transparency Market Research, global power semiconductor market is expected to hit approximately $54.88 billion by 2025, which favors growth prospects of the acquisition.
Notably, reduced demand for flagship smartphones, primarily lackluster sales of Apple’s AAPL iPhones has been impacting Qorvo’s Mobile Products (MP) segment for quite some time.
In third-quarter fiscal 2019, MP revenues came in at $602 million, down 6% year over year. Meanwhile, IDP revenues grew double digit year over year to $230 million, marking 11th consecutive quarter of growth.
In this backdrop, we believe the latest deal can be considered as an effort to strengthen IDP segment in order to cushion the company’s business from the underperforming mobile domain, which is a smart move.
The company is already benefiting from rapid adoption of Gallium Nitride (GaN) for high-power applications. Further, accelerating timeline for 5G deployment bodes well.
We also note that the buyout will aid to the company to enhance its competitive position against peers in power solutions market like Analog Devices ADI, CREE CREE, among others.
It is to be noted that buyout of GreenPeak (in 2016) enabled Qorvo to enhance footing in the high growth IoT market. Active-Semi is expected to take the acquirer a level up in this domain.
Currently, Qorvo carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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