One ETF For Semiconductor M&A

The reaction to Texas Instruments' TXN $6.5 billion takeover offer for rival National Semiconductor NSM has been predictable: Everybody wants to know who will be next to be taken over in the chip business. It's a relevant question on the heels of a major deal and worth asking when considering the pile of cash tech companies are sitting on, but does one deal beget another and another? And what are the ETF plays on this theme, assuming it expands beyond TI and Nat Semi? That last question is probably easier to answer. It's probably reasonable to assume that TI is out of the market for a big acquisition over the medium-term, so the Semiconductor HOLDRs SMH, probably isn't a great M&A play. Almost 40% of the ETF is devoted to TI and Intel INTC, so unless Intel or perhaps Applied Materials AMAT start doing some buying, SMH is not an investors best chip M&A bet. An investor's best bet in terms of an ETF that mixes potential buyers and sellers in the semiconductor universe may just be the SPDR S&P Semiconductor ETF XSD. With 53 holdings, XSD certainly provides a compelling avenue for further chip M&A though one drawback is that the largest holding, Sunpower SPWRA gets a weight of just 2.45%. Another drawback to betting on chip M&A, and this is no fault of XSD's, is how long it can take to go from rumor to actual deal. National Semiconductor was mentioned as a takeover target as far back as 1998. More than a decade later, it's finally being acquired. Consider the case of another XSD holdings that may see renewed speculation as takeover candidates Fairchild Semiconductor FCS. Fairchild was mentioned as a takeover target...in 1988. More than two decades later, the company is still independent. Nine years ago, Micron MU was trying to buy Hynix and couldn't get that deal done. Rambus RMBS was a mentioned as a takeover target in 2007. Today the company still exists as independent. The bottom line is XSD is a fine way to play more chip M&A, but it might be best to sell the rumor in this case because chip M&A rumors don't always lead to a confirmed deal.