ON Semiconductor (Nasdaq: ONNN) wants to run with the big boys in the chipmaking world. To catapult itself into the top 20 short-list of global chip designers, the company just bought a veteran silicon samurai from Japan.
Taking Sanyo Semiconductor off Panasonic's (NYSE: PC) hands adds about 30% to ON's annual sales. Though the Sanyo division isn't profitable today, ON expects to paint that red ink black (do I hear the Rolling Stones in the background?) in a year or so. Sanyo runs major manufacturing lines in Japan, where ON has one factory already, and its customer list includes the big Japanese automakers. Those two factors alone should be enough to justify this buyout.
It's a great fit for ON's strategic direction, and it will give the company further leverage when battling peers such as RF Micro Devices (Nasdaq: RFMD) and SkyWorks Solutions (Nasdaq: SWKS). Sanyo also brings some well-respected expertise in consumer segments and audio circuitry to the table, which will help ON ward off the onslaught from rising audio star Cirrus Logic (Nasdaq: CRUS) and others.
With a combined sales run-rate of about $3.5 billion, ON is still a far cry from analog titan Texas Instruments (NYSE: TXN). But that's still a very respectable market size, giving the company economies of scale and cross-sale opportunities like it's never seen before.
Panasonic is happy to hand off a semiconductor arm it never wanted, since it bought Sanyo mostly for its world-leading rechargeable battery operations. If ON can whip this acquisition into shape on time and under budget, it may have just bought itself a high-quality chunk of fresh sales on the cheap. ON's management is talking the talk that would move this deal in the right direction, promising to hold back on further acquisitions until this one has fully settled.
Could ON have spent $366 million in cash and stock better anywhere else? I don't think so, but feel free to discuss other options in the comments below.
