Onsemi (NASDAQ:ON)'s proposed acquisition of Synaptics could create long-term strategic benefits, with Bank of America writing that a meeting with management increased its confidence in the rationale and potential synergies of the transaction.
The analysts wrote that Synaptics adds highly complementary compute assets to Onsemi (NASDAQ:ON)’s existing strengths in power, sensing and control, supporting the company’s ambition to build a complete edge AI portfolio.
They wrote that acquiring these capabilities through M&A allows Onsemi to accelerate time to market while avoiding the distraction of developing them internally.
Bank of America wrote that the market underappreciates the potential long-term benefits of the transaction, noting that initial cost synergy assumptions of $200 million could underestimate the ultimate savings potential. The analysts added that revenue synergies could also be significant over time as Onsemi cross-sells Synaptics products through its distribution channel.
The analysts wrote that the all-stock transaction preserves Onsemi’s balance sheet flexibility to fund buybacks and invest in new products, including Synaptics’ Astra program. They added that the deal could provide solid EPS accretion above the $7 in long-term EPS power they see for core Onsemi.
Bank of America also highlighted an expanded market opportunity, writing that Onsemi now believes the total addressable market for its core business exceeds $200 billion, compared with $64 billion at its previous analyst day, while Synaptics adds an additional $30 billion.
The analysts wrote that Synaptics’ consumer and enterprise PC exposure could be viewed negatively by investors but noted that these businesses generate gross margins in the high-50% range, above Onsemi’s typical high-40% gross margins.
On artificial intelligence opportunities, Bank of America wrote that Onsemi’s AI data center business is on track to at least double in 2026 from $250 million in 2025. The analysts highlighted the company’s vertical gallium nitride technology, writing that it is differentiated as the only device supporting high frequency and high voltages in a single chip.
The analysts wrote that Onsemi’s core initiatives remain on track, including progress in automotive silicon carbide for China electric vehicles, ethernet and zonal architecture, while industrial segments are recovering as purchasing managers’ indexes move above 50. They also noted that the recent exit of two facilities represents 50 basis points of a targeted 200 basis points of gross margin expansion from Onsemi’s fab restructuring initiatives.
Bank of America maintained its ‘Buy’ rating, writing that Onsemi’s upcoming analyst day could serve as a catalyst.
Shares of Onsemi traded up more than 5% on Thursday afternoon amid a broader rally in chipmaker stocks.