Wednesday, November 18, 2009

Semtech buys Sierra Monolithics, boosts their "vector" (SMTC)

Semiconductor firm Semtech (SMTC) just figured out what to do with its massive cash pile.

They announced the $180million purchase of Sierra Monolithics, another firm targeting the same communications market.

The purchase price is about 3.3 times this year's expected revenue, which is a slightly richer valuation than Semtech's own multiple.

There is a nice amount of detail in the press release, certainly more info than is commonly disclosed about acquisitions.

"Sierra Monolithics expects to generate approximately $50 million of revenue for calendar year 2009 with gross margins towards the high end of Semtech’s stated gross margin model of 55% to 60%. Driven by its growing product portfolio and the rapid growth markets it addresses, Sierra Monolithics expects to continue the rapid growth vector it has been on over the last five years, including revenue growth of approximately 20% to 30% in calendar year 2010."

Instead of buying back shares of its common stock, Semtech has put this money to work in a way that should reward shareholders. As I commonly point out, management is not in the business of stockpicking, so I prefer to see capital deployed in manners like this.

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