Texas Instruments has concluded a much-rumored deal and sold its Sensors & Controls business for $3 billion in cash to a private equity group organized by Bain Capital. The sale not only rids Texas Instruments of a relatively weak business unit, but will also provide the company with capital to fund further growth through acquisitions.
Texas Instruments has sold its Sensors and Controls business.
The sale gives Texas Instruments (TI) the war chest to play a major part in the expected consolidation of the chip sector. Royal Philips Electronics announced in December that it was to spin out its $5.7 billion-a-year semiconductor operation to take part in what it saw as a flurry of mergers in the sector.
As one of the big three suppliers, with Intel and Samsung Electronics, TI is in a strong position to snap up one of more of the many smaller vendors to strengthen its operations.
TI was careful to exclude from the sale of Sensors & Controls (S&C) its $120 million-a-year RFID operation, which, although operating on low margins because of the R&D spend needed by a young business, is expected to achieve high revenue growth in future years.
With a compound growth rate of 7% against 17% for its semiconductor business, S&C has become a drag on TI’s expansion and its operating margins were falling against that of the chip business.
S&C has revenue of more than $1 billion a year, about 10% of TI’s total. It supplies the appliance, climate control, industrial, automotive, lighting, and aircraft markets.
S&C contributes between $0.02 and $0.03 to TI’s quarterly earnings, considerably more than the interest the company will earn of the cash from its sale, suggesting that it will look for a profitable acquisition to make up the difference.
TI said the agreement was about unlocking value and that the company will intensify its focus on its high-growth core digital signal processing and analog semiconductor opportunities.
Meanwhile, TI VP and investor relations manager Ron Slaymaker would not say whether the company would follow up the S&C sale with the disposal of another fringe activity, its calculator business, which generates about 5% of revenue. However, he did point out that it is highly profitable, with margins of more than 40%.