Slowing growth to spur analog semiconductor deals

By Anupreeta Das

SAN FRANCISCO (Reuters) - Analog chip makers, faced with slowing industry growth and looking to put their piles of cash to use, are likely to spur deal-making in coming months.

The pace of deal-making among analog semiconductor companies had lagged behind the overall technology sector because of strong growth opportunities within the industry.

The analog semiconductor industry grew at about 25 percent annually from the mid-1990s until about five years ago, driven by exponentially increasing demand for these chips from industries as far-ranging as housing and communications.

Analog chips receive continuous signals and are used in products that involve sound waves or pressure, which cannot be broken into ones and zeros -- the stuff of digital signals. Cell phones, computers, planes, cars and radios all use analog chips.

But the industry is now maturing, with the rate of growth dropping to about 10 percent annually. Analysts expect that rate to decline slightly in the next few years.

"Growth isn't as explosive anymore," said Wedbush Morgan analyst Patrick Wang. "The industry is ripe for consolidation."

Analog chip makers are also smarting from the economic downturn, which has shrunk demand for handsets, consumer electronics and other products that use analog components. Last month, Texas Instruments Inc (TXN.N: Quote, Profile, Research), the largest U.S. cell phone chip maker, lowered its first-quarter earnings forecast, citing a weaker market for chips used in high-end phones.

These factors are likely to spur companies that have the cash to look for alliances designed to lead them to new markets and plug holes in their product portfolios, analysts said.