Bigger is better is the new mantra, as more technologies are being squeezed onto chips and customers want to deal with integrated suppliers that can offer the broadest range of products.

"You want to be the supplier that has the most capability," said Ernie Ruehl, managing director at Credit Suisse.

Credit Suisse advised NXP Semiconductors (>> NXP Semiconductors NV) on its deal with Freescale Semiconductor (>> Freescale Semiconductor Ltd), which kicked off the current wave of chip mergers in March, and was one of the advisers to Avago Technologies (>> Avago Technologies Ltd) in its $37 billion (24 billion pound) deal for Broadcom Corp (>> Broadcom Corporation) last week.

Bigger companies can better afford the ever-rising cost of design and manufacturing.

"A leading-edge design can cost $150 million to $200 million, which means that you have to be able to generate four times the revenue to get a return on investment," said Mario Morales, an analyst at tech research firm IDC.

Companies that make analog and mixed-signal chips - a mixture of analog and digital - are in demand, analysts said. Analog chips process real-world signals such as sound and light, so they are central to smartphones and devices connected to the Internet.

As a result, companies like Maxim Integrated Products Inc (>> Maxim Integrated Products Inc.), Linear Technology Corp (>> Linear Technology Corporation), Intersil Corp (>> Intersil Corp), Silicon Laboratories Inc (>> Silicon Laboratories), Analog Devices Inc (>> Analog Devices, Inc.) and M/A-COM Technology (>> M/A-COM Technology Solutions Hldgs Inc) are under the spotlight.

Another closely related subsector is microcontrollers, essentially small computers used in automatically controlled products like car engines or implanted medical devices. Smaller microcontroller makers include Atmel Corp (>> Atmel Corporation) and Renesas Electronics Corp (>> Renesas Electronics Corporation).

The big chip makers, such as Intel Corp (>> Intel Corporation), Texas Instruments Inc (>> Texas Instruments Incorporated) and Qualcomm Inc (>> QUALCOMM, Inc.), want to beef up in just those areas.

This thirst for growth has helped spur semiconductor stocks to new heights, with the PHLX Semiconductor Sector index (>> iShares S&P NA Tec. Semi. Idx. Fd.(ETF)) last month hitting its highest since 2001.

As a result, valuations are growing, but not out of line with technology in general. Potential target NVIDIA Corp (>> NVIDIA Corporation) is trading at 24 times estimated profit for the next 12 months, and Xilinx Inc (>> Xilinx, Inc.), Analog Devices and Marvell Technology Group (>> Marvell Technology Group Ltd.) are at around 21 times, according to Reuters data. Semiconductors as a group have historically traded about 15 times.

But high valuations have not stopped the pace of deals or the premiums companies are willing to pay as low interest rates provide a source of cheap capital. Intel is offering about 35 times expected earnings for Altera Corp (>> Altera Corporation).

After barely five months, $80 billion in semiconductor M&A has been racked up this year, according to Reuters data. In the last two weeks alone, Avago and Broadcom announced their deal and Intel moved to buy Altera.

More deal activity is brewing. Analog chip maker Exar Corp (>> Exar Corporation) said last month it would look at strategic options. Cypress Semiconductor Corp (>> Cypress Semiconductor Corporation) has made an offer for Integrated Silicon Solution Inc (>> Integrated Silicon Solution, Inc.) but has so far been rebuffed. The chief executive officer of Lattice Semiconductor Corp (>> Lattice Semiconductor) told Reuters this week he was open to a sale, but only for a big premium.

(Additional reporting by Liana Baker in New York, Noel Randewich in San Francisco and Lehar Maan in Bangalore; Editing by Steve Trousdale and David Gregorio)

By Liana B. Baker and Bill Rigby