What happened
On a down day for the broader semiconductor space, NXP Semiconductors (NXPI 1.29%) was up by 6.5% as of 2:07 p.m. ET Thursday. There wasn't much in the way of news coming out of the company, but a major tech publication reported that Korean tech conglomerate Samsung is interested in buying it.
So what
The Asian Tech Press reported Thursday that Samsung is looking to acquire NXP specifically. While the article also cited other European chipmakers such as Infineon (IFNNF 2.39%) and ARM Holdings as possible targets, NXP appears to be on the top of the list.
The thesis for the acquisition is two-fold. First, Samsung seems to acknowledge the attractiveness of chipmakers that serve the auto industry. Semiconductor content per vehicle is only rising with each new model year as automakers add more autonomous-driving and driver-assist features, and as more electric vehicles are sold. Last year, NXP received 50% of its revenue from the auto sector, and another 22% from the industrial and Internet of Things sector, which is also increasing the chip content in its products. Overall, NXP forecasts that these markets will grow by 9% to 14% annually over the next three years -- an attractive growth rate compared to what is expected from the semiconductor sector and the broader economy.
Second, NXP is a major customer of Taiwan Semiconductor Manufacturing (TSM 2.71%), and Samsung is in a race with TSM in the foundry business. Foundries produce chips for other companies that outsource their manufacturing, and it is becoming an even hotter business amid the semiconductor boom. If Samsung were to acquire NXP, it could also bring NXP's manufacturing in house -- effectively stealing business from its rival.
Now what
Even after Thursday's pop, NXP only trades around 13.7 times this year's earnings estimates. One would think NXP might have shot higher, given that whatever acquisition premium is offered would certainly be higher than that.
However, investors may have doubts regarding the viability of such a deal. After all, five years ago, Qualcomm (NASDAQ: QCOM) tried to buy NXP, but Chinese authorities wouldn't sign off, so the plan was abandoned. I'm not sure what would lead to a different outcome this time around, especially since China is attempting to strengthen its position in the crucial semiconductor market.
The rumor mill may be benefiting NXP shareholders now, but they probably shouldn't count on a deal actually happening. It's probably best to focus one's investment thesis for NXP on its fundamentals as a stand-alone company.
