The planned takeover by Qualcomm Inc. (QCOM) of Atheros Communications Inc. (ATHR) shows how the increasing demand for connecting devices is one of the key drivers behind semi-conductor M&A.

In some ways, this clear industry trend has some parallels to the M&A splurge for cloud assets last year, in which companies looked to deal-making so they could put together a wider set of integrated offerings, such as baseband and connectivity.

Now that Qualcomm has a full set of assets, expect this drive toward integrated solutions to be the way forward for deals between semiconductor companies.

In addition to Qualcomm's move on Atheros, the sale of Infineon Technologies AG's (IFX.XE) wireless division to Intel Corp. (INTC) was one the least surprising bits of M&A in 2010, which now means that two of the giants of the industry have moved a long way towards a "one-stop" offering for handset manufacturers, which could lead to a drive for connectivity assets, replicating the dash for cloud-related companies of last year.

Some in the market believe that Intel could make a purchase in the GPS space, the other acquirers that would be after connectivity assets could include Marvell Technology Group Ltd. (MRVL) and MediaTek Inc. (2454.TW). Meanwhile, the connectively giant Broadcom Corp. (BRCM), with a market capitalization of $20.8 billion, is simply too large to be a target.

As a result, in addition to Atheros, some targets that could enable more capabilities to be brought under one roof for the giants could include Cavium Networks Inc. (CAVM), with a market cap of $2.0 billion, which has network and Bluetooth capability; Silicon Laboratories Inc. (SLAB) with its wireless assets and $2.1 billion market cap; Texas Instruments' connectivity division, and U.K. bluetooth and Wi-Fi specialist CSR PLC (CSR.LN), with a market capitalization of $1.2 billion.

Indeed, a significant distraction for CSR was removed Tuesday with the settlement of litigation with Broadcom, pushing its share up 13% and leading Morgan Stanley to raise its target price to 400p from 352p.

Furthermore, there could also be activity, either buying or selling of assets, by ST-Ericsson, given its recent loss-making history. ST-Ericsson is a joint venture of STMicroelectronics NV (STM) and Telefon AB LM Ericsson (ERIC).

(Paul Sharma is a columnist for Dow Jones Investment Banker on the telecommunications, media and technology sectors. He has 20 years of telecoms industry experience, working as an analyst and in industry. He can be reached at +44 20 7842 9463 or by email: paul.sharma@dowjones.com)
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