Shares of leading semiconductor manufacturer TriQuint Semiconductor, Inc. (TQNT) and rival RF Micro Devices Inc. (RFMD) are set to be delisted from the NASDAQ with the merger of the respective entities into a combined firm. The combined entity, named Qorvo Inc., is expected to trade on the NASDAQ under the ticker symbol “QRVO” with a new logo from Jan 2, 2015.
TriQuint shareholders will receive 1.675 shares of Qorvo and RF Micro shareholders will receive a share of Qorvo for each share held. The all-stock transaction, valued at approximately $1.6 billion, is termed as a merger of equals.
The name Qorvo was reportedly derived from the combined synergies of both the companies. The new entity will bring under a common platform all the critical radio frequency (RF) components that are essential for fabricating mobile devices, thereby creating an undisputed market leader with a diversified product portfolio. These include power amplifiers (PAs), power management integrated circuits (PMICs), antenna control solutions, switch-based products and premium filters.
This in turn will offer better bargaining power and make it harder for customers such as Apple Inc. (AAPL) and Samsung Electronics Co. Ltd. (SSNLF) to negotiate on pricing. With global smartphone users predicted to triple to 5.6 billion by 2019, the new entity will have a huge revenue-generating potential.
At the same time, the merger will strengthen the combined company's ability to better serve the infrastructure and defense/aerospace industries with advanced gallium nitride (GaN) solutions for additional markets and applications, and foundry services to support radar, next generation base stations, optical communications and the Internet of Things. The newly formed entity is expected to be a leading player in this sphere as well.
In addition, the merger will offer synergistic benefits and increase the profitability of the new company through economies of scale and mutual sharing of manufacturing expertise, research and development costs and adjustment of staffing expenses. Qorvo is expected to leverage the core strengths of both the companies to rapidly translate research and development advances into large scale production.
The transaction is expected to generate $75 million of cost savings in the first year of its operation, followed by another $75 million in the second year. Post-merger, the deal is also expected to be accretive to non-GAAP earnings in the first full fiscal year of its operation.
With a broad product portfolio and an improved operating model, the merger is likely to create new growth opportunities in three large global markets, namely, mobile devices, network infrastructure and aerospace/defense. The merger is expected to be a boon for the overall industry as a huge talent pool and combined resources will spearhead technological innovation. The combination will also offer higher data throughput for the overall benefit of carriers and consumers alike.
The merger is likely to lead to further industry consolidation with pricing becoming more rational. Both RF Micro and TriQuint presently carry a Zacks Rank #3 (Hold).
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