At the current share price of $18.08, Cirrus’ market cap of only $1.15 billion and its price to cash flow multiple of 7.7 give it a size and value that should be very attractive to a company like Intel that needs its expertise and market presence. Considering Intel’s R&D budget and cash position, it is hard to imagine they could find a faster, more cost efficient way to enter the mobile device market than an acquisition of Cirrus Logic.
STMicroelectronics N.V. (ADR) (NYSE:STM) is a semiconductor design and manufacturing company that targets its products to the automotive, consumer, computer and communications infrastructure markets and just might offer exposure to market that Intel Corporation (NASDAQ:INTC) would find interesting and complimentary to its existing business.
While the market capitalization of STMicroelectronics N.V. (ADR) (NYSE:STM), at $8.27 billion, is much larger than that of Cirrus, it would still be within the affordable range for Intel. Given the proximity of the current share price of $9.31 to its 52-week high of $10.05, this acquisition would probably require a much lower premium to current price than would Cirrus. However, acquisition decisions should be based more on actual value than on premium to current market price and STMicroelectronics might fall short in this regard.
Over the past five years, STMicroelectronics N.V. (ADR) (NYSE:STM) has produced negative annual returns on equity, assets and capital of 4.1%, 2.6%, and 3.6% respectively and currently trades at a price to cash flow multiple of 19.31. This price to cash flow is only producing a yield of slightly over 5%. The low yield against the market capitalization, the fabrication facilities that duplicate Intel’s existing excess capacity and the lack of pure focus on mobile devices might make this a less attractive target for Intel.
Final thoughts
If Brian Krzanich really wants to boldly move into the mobile device market, it is hard to imagine a move that would more definitively display that commitment than an acquisition of Cirrus Logic. Intel Corporation (NASDAQ:INTC) could pay twice the current price for this business, and still buy it cheaply and quickly achieve a stated objective. With or without an acquisition, shares of Cirrus are cheap and will rise.
The article Should Intel Buy Its Way Into Mobile Devices? originally appeared on Fool.com and is written by Ken McGaha.
Ken McGaha owns shares of Cirrus Logic. The Motley Fool recommends Intel. The Motley Fool owns shares of Cirrus Logic and Intel. Ken is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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