BANGALORE - Chipmaker ON Semiconductor Corp said it will buy California Micro Devices Corp for about $108 million in cash, to strengthen its handset portfolio.

Shares of California Micro Devices rose 53 percent to a new year-high of $4.67, making them one of the top percentage gainers on Nasdaq. ON Semiconductor shares were up 6 percent at $8.60.

ON Semiconductor, which makes audio and power-management chips used in mobile phones, cars and portable electronics, offered $4.70 per California Micro Devices share, a 54 percent premium to California Micro Devices' Friday closing price of $3.05.

California Micro Devices makes application specific circuit protection devices and display electronics devices for mobile handsets, consumer electronics, PCs and for the high-brightness light emitting diode (LED) markets.

California Micro Devices would bolster ON Semiconductor's handset portfolio, which it plans to bring to pre-recession levels by early 2011.
Besides strengthening its handset business, the deal increases ON Semiconductor's exposure to the LED space which is going to be very attractive in the next couple of years, Wedbush Morgan Securities analyst Patrick Wang said by phone.

ON Semiconductor's offer comes at a time when chip companies are actively looking for small acquisitions to broaden their portfolio by cashing in on bargains.

We haven't really seen valuations return to previous levels so there is opportunity to actually pick up some of these companies on added discounts, Wang said.

Starting in the fourth quarter and going into the seasonally weak first quarter, the fall in revenue would make it a good time for some acquisitions in the space, he added.

Last week, Ixys Corp agreed to buy Zilog Corp (ZILG.O) for about $62.4 million. In October, Sigma Designs agreed to buy Israeli home networking chip firm CopperGate Communications for $160 million.

Piper Jaffray & Co analyst Auguste Gus Richard expects the deal to help valuations of other smaller chip firms, but said the deal doesn't move the needle for the company.

We believe the deal represents a good tuck-in acquisition for ON Semiconductor, he said in a note to clients.

ON Semiconductor sees the deal adding to earnings within a year of the closing, expected in the first quarter of 2010.

The company, which will finance the buyout using existing cash, said it may record a one-time charge for deal-related expenses that are yet to be determined. (Reporting by Shrutika Verma in Bangalore; Editing by Ratul Ray Chaudhuri)