Analog Devices to Boost Chip Offering with Hittite Buyout - Analyst Blog

Analog Devices Inc. ADI recently announced that it has entered a definitive agreement to acquire Hittite Microwave Corporation HITT for $2.0 billion or $78 per share in cash. The transaction, subject to regulatory approvals and customary closing conditions, is expected to be closed by the end of third-quarter 2014.

Massachusetts-based Hittite manufactures integrated circuits, modules and subsystems for radio frequency microwave and millimeter wave applications. The company's chips are used in cellular, optical and satellite communications, medical imaging and defense electronics. The company reported total revenue of $7.5 million in the first quarter, soaring 188% year over year.

Analog Devices makes signal-processing microchips that are used in several consumer products, such as automobiles, personal computers, cellphones and tablets. Hittite's chips, on the other hand, process very high frequency analog signals used in military and satellite communications systems. Therefore, the acquisition complements Analog Devices' commitment to offer high frequency chips and other signal processors.

Hittite's offerings will strengthen Analog Devices' presence in the industrial and communications end markets. The strategic move aims to expand the company's existing product line-up to be used in satellite gear, military radar and cars, which require very high radio frequency RF chips and signal processors.

For the past few decades, Analog Devices has been developing innovative products for the consumer, communications, automotive and industrial segments. The combined company would boast a wider selection of high-power, high-frequency chips by leveraging Hittite's leading position in RF, microwave, and millimeter wave technology. Additionally, the strategic deal is expected to boost Analog Devices' profitability.

Reportedly, this deal happens to be the largest deal for Analog this year. Following the announcement of the deal, Analog shares jumped 4.97% to close at $55.31. The acquisition is expected to augment revenues, produce cost synergies, complement the company's product portfolio and generate economies of scale.

Analog Devices reaffirmed its third-quarter 2014 guidance of 1–5% sequential revenues increase and pro-forma earnings in the 60–64 cents range. The Zacks Consensus Estimate for third-quarter earnings is pegged at 62 cents.

In the last reported quarter, earnings of 59 cents surpassed the Zacks Consensus Estimate by 3 cents. The increase was driven by strong revenue growth coupled with better gross margins and solid expense management.

Currently, Analog Devices has a Zacks Rank # 3 (Hold). Other stocks that look attractive are Montage Technology Group Ltd MONT and MaxLinear Inc. MXL sporting a Zacks Rank # 1 (Strong Buy).