Today: Avago agrees to pay $6.6 billion for Silicon Valley chipmaker LSI, wrapping up a year that has seen three big consolidation moves in the semiconductor sector. Also: Twitter turns around, Violin Memory pops after CEO shakeup.
The Lead: LSI agrees to Avago purchase, continuing chip-consolidation trend
San Jose's LSI agreed Monday to be acquired by Avago Technologies in a $6.6 billion deal, the third huge merger involving Silicon Valley semiconductor company in 2013.
Avago is offering $11.15 per share in cash for the local chipmaker, a premium of more than 40 percent from the company's Friday closing price, as the Singapore semiconductor firm seeks to diversify its offerings with LSI's storage- and networking-focused business.
"Our leadership positions in enterprise storage and networking, in combination with Avago, create greater scale to further drive innovations into the datacenter," LSI CEO Abhi Talwalkar said in Monday's news release.
The only deal larger than the proposed LSI acquisition in the semiconductor industry this year was Applied Materials' proposed merger with Tokyo Electron, a $9.39 billion stock deal that is expected to close in 2014. Before those two moves, San Jose's Maxim Integrated Products agreed to purchase Fremont-based Volterra Semiconductor for $575.3 million, which represented a 55 percent premium.
The moves arrive as the semiconductor industry struggles amid technology's move toward mobile devices. Profits among the SV150's chip companies declined 38 percent in 2012 while revenues declined 6 percent, though LSI managed a double-digit gain in sales. Chip-equipment companies -- of which Santa Clara-based Applied Materials is the largest -- have also been battered.
"The question is whether this is the beginning of a consolidation trend in semiconductors -- scale does make sense," Topeka Capital Markets analyst Suji De Silva told Bloomberg News.
Two analysts contacted Monday by the Mercury News said the answer to that question appears to be in the affirmative.
'I think we will be seeing a lot more chip mergers and acquisitions in the future," analyst Patrick Moorhead said. "There is a glut of chipmakers in the networking and processor spaces and I see some consolidation coming.
"The semiconductor market is maturing, so without a doubt consolidation will come," Gartner analyst Sergis Mushell said.
While the boards of both companies have approved the deal, it must still be approved by LSI shareholders, and FBR Capital Markets analyst Christopher Rolland suggested Friday that another company could step in with a bigger offer.
"While we think the probability of another bid is low, we do believe LSI may be more strategically valuable for others besides Avago," Rolland said, mentioning Broadcom, Intel (INTC), SanDisk, Seagate, Toshiba and Western Digital as possibilities.
Avago stock reached all-time highs Monday, closing with a 9.8 percent gain at $50.10. LSI stock skyrocketed 38.6 percent to $10.96 to more closely resemble the proposed acquisition price.
SV150 market report: New week, new path for Twitter; Violin CEO fired
The large gain from LSI and improvements for Apple (AAPL), Google (GOOG), and other large Silicon Valley firms helped push the SV150 up faster than gains recorded by large Wall Street stock indexes, but Twitter's sudden rise finally fell apart.
After closing at a record high every day last week and gaining 31.3 percent during the five-day span, Twitter stock declined 4.1 percent to $56.61 Monday as analysts questioned the San Francisco company's spiking valuation. "Investors underestimate some challenges facing the company and advertisers seeking to employ the platform," Wells Fargo analyst Peter Stabler wrote Monday morning, explaining that he feels Twitter's true valuation would be in the $36-$39 range. SunTrust analyst Robert Peck, who astounded observers by putting a price target of $50 on Twitter even before it announced an IPO price, cut the stock to a "Neutral" rating after it easily topped that target last week. "While we think the long term potential for Twitter's valuation is much higher, we think in the near term it has become stretched," he wrote Monday. Still, Twitter continued to ramp up new offerings as a freshly public company, transitioning its promoted-accounts advertising feature to its mobile product and testing a feature that would highlight tweets that were posted near users' physical locations.
Adobe (ADBE), which also hit record high prices last week, likewise pulled back Monday, dropping 3.9 percent to $58.50. Violin Memory, which began falling the moment it hit the public markets this fall, bounced CEO Don Basile and finally found gains on Wall Street, increasing 21.6 percent to $3.27, still far short of its $9 IPO price. Netflix (NFLX) fell 0.7 percent to $366.31 despite receiving streaming rights to the "Breaking Bad" prequel "Better Call Saul," and Yahoo (YHOO) held steady at $39.73 after CEO Marissa Mayer apologized for last week's email outage late Friday.
Gains easily outpaced declines in the SV150 on Monday, though. Google increased 1.2 percent to $1,072.98 after news of its acquisition of robotics company Boston Dynamics arrived over the weekend, part of a plan for Google to delve deep into robots under the direction of former Android boss Andy Rubin. Apple gained 0.6 percent to $557.50 as investors continue to wait for official confirmation of a deal with China Mobile, and Ruckus Wireless rose 4.9 percent to $13.53 after turning on the first phase of a project that seeks to offer free Wi-Fi throughout San Francisco. Intel advanced 0.7 percent to $24.45 after announcing the acquisition of Mindspeed Technologies, which could help its telecommunications business, and Juniper increased 1.8 percent to $21.04 before announcing after the bell that it agreed to acquire software company WANDL for $60 million. After suffering last week, Cisco (CSCO) and Oracle (ORCL) got back on track: Cisco gained 2.2 percent to $20.68 after a positive note from Argus Research analyst Jim Kelleher, and Oracle increased 0.9 percent to $33.54. Nimble Storage added to the big gains it experienced in its market debut, increasing another 4.6 percent to $35.50.
The SV150 index of Silicon Valley's largest tech companies: Up 11.63, or 0.81 percent, to 1,445.42
The tech-heavy Nasdaq composite index: Up 28.54, or 0.71 percent, to 4,029.52
The blue chip Dow Jones industrial average: Up 129.21, or 0.82 percent, to 15,884.57
And the widely watched Standard & Poor's 500 index: Up 11.22, or 0.63 percent, to 1,786.54
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/jowens510.