After eight months of wallowing through the low part of a cyclical downturn in the chip industry, one would think we'd start seeing signs of the long-called-for consolidation in the semiconductor sector. As usual, though, management teams and boards at struggling chip companies are getting in the way.

Speaking at The Churchill Club's annual semiconductor industry forecast dinner Wednesday night, J.P. Morgan Chase & Co. chip analyst Chris Danely said, "There's a need for consolidation, but I don't think we're going to get it."  

An area particularly ripe for M&A is the communication integrated circuit sector, he said. Several chipmakers have survived that shouldn't necessarily still be independent, he added, citing as examples Vitesse Semiconductor Corp. [VTSS.PK], Applied Micro Circuits Corp. [AMCC] and Conexant Systems Inc. [CNXT].

"It there ever was an argument for consolidation, it's in the comm IC space," Danely said. "There are companies still running around that shouldn't be."

Danely said he recently spoke with the CEOs of both Texas Instruments Inc. [TXN] and Analog Devices Inc. [ADI], and they said they were interested in making acquisitions, especially in the analog chip sector. But potential targets either aren't willing to sell or are still demanding unreasonable prices, the CEOs said.

Specifically, smaller power management chip companies "have got to be on their shopping lists," Danely said. He went so far as to name two that could become targets: privately held Advanced Monolithic Systems Inc. and Monolithic Power Systems Inc. [MPWR].

The annual Churchill Club event, however, is more about stock picks than figuring out which company might get acquired. The panel, which was moderated by Charles River Partners general partner Bill Tai, put forth predictions on the Philadelphia Semiconductor Index [^SOXX], a group of the top chip stocks and a general indicator of the health of the industry that Thursday was hovering around 416.

Danely and Dan Niles, CEO of Neuberger Berman Technology Management and formerly a star chip analyst for Lehman Brothers Inc., boxed in Mark Lipacis of Morgan Stanley's year-out prediction of 451 with 450 and 452, respectively. J&W Seligman & Co. managing director Sanjeeth Peruri was less optimistic, pegging the index at 425 a year from now, while Tai guessed 488.

Specific 12-month stock picks were as follows:

• Danely chose specialty chipmaker Microchip Technology Inc. [MCHP], citing its management and winning products. Surprisingly, he also picked the struggling Advanced Microdevices Inc. [AMD], largely because the stock pretty much couldn't get much lower.
  "From a stock perspective, they are trading like they are going out of business," Danely said.
• Lipacis picked PMC-Sierra Inc. [PMCS], calling it a classic pure-play stock that should be able to take advantage of any positive momentum in the industry. He also chose Texas Instruments, largely because "people hate that stock" right now.
• For Niles, Skyworks Solutions Inc. [SWKS] was the top pick because of traction the company is gaining at wireless device makers. He also chose chip equipment giant Applied Materials Inc. [AMAT] because of its entry into the solar market.
• Finally, Peruri chose ON Semiconductor Corp. [ONNN], and he and Tai each chose Marvell Technology Group [MRVL].