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This blockbuster chip merger may take a while to pay off


The design of analog semiconductors has been called an art in which chip designers translate the fuzzy signals from the real world — not the binary world of zeros and ones — into digital form.

Analog Devices Inc.

, one of the larger players in analog chips, expects to have more of these specialized engineers with its pending deal to buy Maxim Integrated Products Inc.

in an all-stock acquisition valued at more than $20 billion announced early Monday. The combined companies will be worth more than $68 billion, but the deal is not expected to close until the middle of 2021.

Shares of ADI fell 5.8% in Monday trading, however, as some analysts believed the company was paying a very high premium and diluting its stock, while Maxim shares jumped 8.1%. The deal may not be as accretive to ADI as quickly as its previous purchase of Linear Technology, another analog player, in 2017. ADI executives told analysts on a conference call Monday that it is on a path to double Linear’s historical revenue growth.

In the conference call, Analog Devices Chief Executive Vincent Roche told investors that the combined workforce of ADI and Maxim would have about 10,000 engineers. That is a treasure trove in the world of analog, where engineers have been known to be recruited just based on their name appearing in a published research paper.

“Looking broadly at the market, we continue to see a decline in the number of hardware engineers, while the number of software engineers grows at double-digit rates,” Roche told analysts. “As a result, our customers are increasingly relying on us for our hardware expertise.” He said that with Maxim, the combined team of over 10,000 engineers expands its breadth of technology and talent.

Maxim will also increase its product line in some high-growth areas, especially the data center, where Maxim has power management products that will complement ADI’s, and in automotive, where ADI has chips for infotainment systems.

“It bolsters our automotive business,” Roche said. “And an area that we’ve had an interest in, but we’ve come late to, is data-center power. So we get that in a very significant way with the combination.”

He added that in research and development, he hopes the combined teams will develop even more products to address the ever-increasing needs of cloud-computing companies. “I think Maxim boosts us an awful lot there.”

But some Maxim investors believed the company was being undervalued, and at least one law firm said it was investigating whether the sale of Maxim was fair to shareholders.

The deal has a fair amount of trade-offs — more consumer exposure for ADI through automotive chips, which is generally a declining business right now, but it gains high-growth data-center products — and a seemingly high price, so there are a lot of incentives to do well and meet targets to increase ADI’s value. With the long time frame, investors may have to be patient for results.

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