Spring 2023: Texas Instruments and Analog Devices

Recommendation for Texas Instruments| Board of Directors

Maanya Kumar

From: East Windsor, NJ

Kelley School of Business Class of 2026

Majors: Finance, Business Analytics

Table of Contents

I. Executive Summary

Executive Summary

Overview

Scope of Proposal

• Texas Instruments Incorporated (NYSE: TXN) makes semiconductors and sells them to a global market

• The company has created hugely important industry products in the past few years and their semiconductor technology is used from everyday customer electronics to all sorts of engineering

• TI has a long history of making acquisitions in order to do expand their research of how they can make their technology smaller and more efficient

Strategic Assessment

• The proposal will focus on TI gaining more market power and being more successful in the new market spaces that it has been venturing towards

• It is important for TI to improve their internal manufacturing processes and they can do that by adopting new ideas from Analog Devices

Proposal

• TI’s current market share power and research abilities put it in the perfect position to make the semiconductor industry much smaller and quickly obtain overall market power

• Analog Devices will add 13% market share to Texas Instrument’s already 19%

• Acquiring Analog Devices would provide them with the ability to lower costs which is currently an issue as TI is spending a lot of money on research and manufacturing

Texas Instruments should acquire Analog Devices at an offer price of $250.99 per share at a total offer price of $16 billion

II. Company Overview

Company Overview

• Analog Devices is another semiconductor that specializes  in manufacturing different chips and circuits

• It captures about 13% of the market and has done about  $12 billion in revenue in the past year

• The company has about 25,000 global employees and  125,000 customers

• Many of their customers are in software,  communications, or aerospace sectors

• It has a history of making strategic acquisitions and has  spent a total of $37.1 billion on acquisitions over the  years since the company was started in the year 1965

• All of the acquisitions that the company has made  have been very technical decisions in order to  increase technological abilities and market  presence

• Most of the companies acquired had good  processes to make integrated circuits which is  something Analog Devices specializes in, different  from Texas Instrument

III. Industry Outlook

Industry Analysis

Semiconductor Market Size

• The global semiconductor market was $573.44 billion in 2022

• This is expected to grow to $1380.79 billion by 2029 (and has a CAGR of about 12%)

• There are 470 global semiconductor companies but there is a top 10, mostly based in the US, that make up most of the market share

• Currently, Texas Instruments holds the largest market share at 19% while Analog Devices follows behind at 13%

Trends

• There has been a growing trend in the consumption of consumer electronics

• The growth of the semiconductor industry has especially happened post-pandemic in 2020

Key Statistics

• The industry is fragmented into five sectors: semiconductor devices, integrated circuits, semiconductor materials, semiconductor foundry market, and outsources semiconductor assembly test services

• The demand for this industry is expected to greatly increase because of the growth in AI, advancements in car technology, internet, etc.

Trends

• Semiconductor production is a key to global economic competition and progression because it pushes all different sectors of business into advancing

• High-tech companies are demanding new sorts of technology and chips are necessary for any of this to occur

VI. Strategic Recommendation

Strategic Recommendation

• Analog Devices (Nasdaq: ADI) is one of the leading semiconductor companies in the industry and has many large customers that rely on the technology and research done by the company

• The company is generating a lot of revenue through venturing into new industries of customers, which is something Texas Instruments can adopt

• The company has 60 offices globally and has five regional headquarters, four of which are not in the United States

$1.04B to shareholders

15.34

• Revenue from the industrial sector grew 26% from last year

• Revenue from the automotive sector grew 29% from last year

• Generated $1.23B in free cash flow in the first quarter

Strategic Recommendation

• Texas Instruments is in the position to expand its presence in the Aerospace semiconductor market. Modern aerospace  development is relying heavily on semiconductors, with the demand increasing by 6.8% in the past seven years.

Performance Catalysts

• TI is moving towards analog processing as opposed to embedded processing in order to be used more in the automotive  industry. Analog Devices already has huge research done in the industry and can integrate their technology with TI to  advance more

• Because of the shift away from Chinese semi-conductors, TI and Analog Devices have many factories, leading to an  increase in semiconductor capacity. The growth of the semiconductor industry is not slowing down so this is necessary

Synergies

Potential Concerns & Mitigations

• Cost synergies: Because both companies have similar development processes and have similar amounts of products,  combining the production would cause them to move towards economies of scale. Along with this, the merger will cause  the company to save money since they will be able to make similar investments in research and use resources more  efficiently

• Revenue synergies: A merger between these two companies would cause them to take over more than half of the market  for semiconductor production and distribution, increasing revenue. Along with this, although most of the products they  make are the same, the ones that are different will provide more product offerings to customers

• Acquiring people to work at semiconductor companies that are qualified enough to do so, especially at a company like Texas  Instruments. This is because there are not enough STEM majors today that are entering the workforce, and given that TI has already  been reducing employment, this makes it harder

• TI already exports some of its manufacturing to China because of the inflation in operating expenses here so the global market may  change