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Analog Devices buys Hittite Microwave for $2B

18 Jun 2014  | Ismini Scouras

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Roche said that there is very little product overlap between the two companies and that it will "harmonise the product definition efforts and just get even more clarity about where each of the pieces plays," in subsequent months. Management will also decide how to assimilate Hittite's fabless structure with ADI's internal manufacturing capabilities. Approximately 50 per cent of ADI's production is done in-house, but it taps outside foundries for 0.18µ or 0.25µ processes.

Hittite develops its own IP that is used in its IC products, which are fabricated outside wafer foundries. Hittite's RF and monolithic microwave chips are developed using gallium arsenide (GaAs) process technology, as well as GaN, InGaP/GaAs, InP, SOI, SiGe, CMOS, and BiCMOS semiconductor processes.

According to David Zinsner, ADI's CFO, ADI has "some operational scale" that it can leverage as it combines Hittite into its operations. "We do think we can actually improve the cost of manufacturing of Hittite's parts as it gets kind of integrated into our operations," he says.

But since there is minimal product and process overlap with ADI's internal capabilities, Rick Hess, Hittite's chief executive, says that "for the most part, Hittite will continue to use its external fabs." Hess also cited gallium nitride as a "significant piece" in the future of the company's growth. "We will continue to drive in the gallium nitride area."

Hess will head up the Hittite division, which will be combined with ADI's RF and microwave business. ADI also reaffirmed financial guidance for its third quarter of fiscal year 2014, for revenue to increase in the range of 1 per cent to 5 per cent, and excluding any one-time items for diluted earnings per share to be in the range of $0.60 to $0.64. In its second quarter ended May 3, ADI's revenue grew 5 per cent year-over-year, to $695million, with gross margins of 66.1 per cent.

In its fourth quarter, Zinsner expects its combined gross and operating margins to improve slightly, due to Hittite's higher-margin profile. He also expects the Hittite acquisition to be accretive to its non-GAAP fourth-quarter earnings by approximately 4 per cent to 6 per cent.

Wall Street applauded the deal, which expected to close near the end of ADI's third fiscal quarter. According to Tore Svanberg, an analyst with Stifel Nicolaus, San Francisco, "ADI's acquisition of Hittite enhances its competitive position and drives market-share gains and meaningful product differentiation in the high-performance RF and microwave/millimetre markets, and could pressure others in the space that are currently operating across all areas of the frequency spectrum, especially in the higher end."

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