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Why Applied Micro Circuits Corp. Shares Are Up Today

By Bradley Seth McNew – Nov 21, 2016 at 9:31AM

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The circuit and microchip maker got a flattering offer.

Image source: Getty Images.

What happened

Shares of Applied Micro Circuits Corp. (NASDAQ: AMCC) are up more than 11% as of 2:18 p.m. EST today following the news that the microchip company is going to be acquired by the larger Macom Technology Solutions Holdings (MTSI 1.40%). This follows a similar jump in October when Applied Micro reported better-than-expected Q3 sales growth. 

So what

Macom's offer of $770 million to acquire Applied Micro Circuits is a 15% premium over the price of shares at the time of the announcement. The deal as announced would provide Applied Micro Circuits shareholders with $8.36 per share made up by $3.25 of cash and 0.1089 Macom shares per AMCC share. 

Image source: Applied Micro Corp.

The reason for Macom's move seems to be that the large chipmaker is trying to consolidate power in an attempt to compete with its even bigger rivals in the space like Intel. A few different law firms have already filed today for increased scrutiny of the buyout deal, but so far the market's reaction seems to indicate that Wall Street expects the deal to go through. 

Now what

Macom is not the only one in the industry looking to consolidate power and gain more market share of some of the high-growth areas these chipmakers are vying for, including autonomous driving cars, artificial intelligence, defense technology, and much more. Macom's purchase of Applied Micro seems to be a play specifically to gain in the data center segment of the market, but it could help the company to grow in various segments.

This highly competitive industry is one that benefits those companies with the best technology, the most resources for increased innovation, and the best brand name to land big partnerships, which is why a company like NVIDIA is thriving in this space now. For Macom, we will wait to see how well this acquisition can help it to gain ground in these new segments and compete with this much bigger rivals.  

Seth McNew has no position in any stocks mentioned. The Motley Fool owns shares of and recommends NVIDIA. The Motley Fool recommends Intel. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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