Analog Devices announced Monday that it's acquiring competitor Maxim Integrated for $21 billion, the biggest U.S. merger announced so far this year.
Both Analog and Maxim make analog semiconductors: chips that take real-world inputs — like sound, light and pressure — and turn them into digital signals that a computer can use. Increased demand for smarter infrastructure and devices, from factories to cars, is driving demand for those chips.
The automotive market appears to be a particular driver of this deal. Maxim is strong in the segment, where it makes popular power management systems. On a call with investors, Analog CEO Vincent Roche confessed that this is a market where Analog has underperformed. Buying Maxim is an easy way to fix that, at the same time as diversifying Analog's industrial-heavy revenue mix.
The two companies also have complementary regional profiles. While Analog is heavily reliant on Western markets, Maxim derives the vast majority of its revenue from Asia, and particularly China. With the Asian market constantly growing in importance, Maxim's customer relationships there could help Analog increase sales for its products in the region, too.
As is often the case with big deals like this, Analog claims it can achieve $275 million worth of cost synergies within two years of the transaction closing, driven by manufacturing efficiencies and lower sales costs. But this doesn't seem like a purely financial deal. Roche highlighted how tough the competition for hardware talent is right now, with engineers increasingly choosing to go into software instead. By taking a competitor out of the market, Analog hopes that it will be easier to attract top talent.