Cadence-Tensilica Multi-million Merger may help CEVA

13 March, 2013

Wunderlich Securities: "The Tensilica multiple of 7.95x correlates with an EV of $18.78 for CEVA." Benchmark: " CEVA will gain DSP market share as chip companies seek programmable DSP solutions"

“Cadence to Buy CEVA Competitor Tensilica for an Astonishing $380M”

CEVA booth at Mobile World Congress 2013
CEVA booth at Mobile World Congress 2013

The merger agreement signed this week between Cadence Design Systems, a global electronic design software provider with Tensilica, took the industry by surprise. Cadence said it has entered into a definitive agreement to acquire Tensilica for approximately $380 million in cash.

Tensilica provides IP for dataplane processing units (DPU) to complements industry-standard processor architectures, providing application-optimized subsystems, mainly for Systems on Chip (SoC). It has more than 200 licensees, including system OEMs and seven of the top 10 semiconductor companies, that have shipped over 2 billion Tensilica IP cores.

In the day after the announcement the shock waves of the deal felt in NASDAQ, when the share prices of CEVA, a direct competitor of Tensilica, jumped 2% within a few minutes to $15.9, and stayed there more or less until the end of the day. In the following hours the industry analysts began to explain the phenomena, and concluded that the deal opens new opportunities for CEVA, a providers of DSP IP cores from Herzliya, Israel.

“We view the price Cadence paid for Tensilica as validation CEVA shares remain undervalued,” wrote Benchmark. “Cadence Designs to Buy CEVA Competitor Tensilica for an Astonishing $380M. The take-out price for Tensilica represents an 8.2x EV/Sales multiple. CEVA, on the other hand, trades with an EV/Sales multiple of 3.6x. CEVA will gain DSP market share as chip companies seek programmable DSP solutions. CEVA should continue to grow cellular baseband market share (from 46%; 2012), and we believe non-mobile-phone baseband applications such as Audio DSP, multimedia, small-cell base station and/or 802.11ac (WiFi) will add another layer of growth for the company.”

This is not far away from Wunderlich Securities analysis: “The Tensilica multiple of 7.95x correlates with an EV of $18.78 for CEVA, which would imply a share value of $25.73. Though it may not occur before 2015, this is the kind of thing we expect to see for CEVA if management is motivated when 3G mix has progressed beyond 50% of volume (now sub-25%) and LTE ramps materially, success from infrastructure (LTE+802.11ac) and applications processor initiatives (audio/video/imaging/vision) could be incremental.”

“Commentary from Mobile World Congress indicates 3G share gains with integrated baseband/app. processor chips from licensee Broadcom. Also, there are indications Intel is close to purchasing the Motorola Mobility circuit design group from Google; we believe this would be positive for CEVA as an additional path to LTE, besides Broadcom, Spreadtrum and captive Samsung designs.”





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