Another wave of mergers and acquisitions (M&A) is sweeping the semiconductor industry since our previous blog on such topics. Some major deals are:
Dell bought EMC for $67 billion, making it the largest tech deal in history thus far
In September, a Chinese company UNIS made a $3.775 billion investment in Western Digital, making them the biggest shareholder of Western Digit. Yesterday, Western Digital announced that they will buy SanDisk for $19 billion
Atmel was sold to Dialog for $4.6 billion
Skyworks acquired PMC-Sierra for $2 billion in cash
VeriSilicon agreed to buy Vivante
Lam Research Corp. announced their deal to buy KLA-Tencor Corp. for $10.6 billion
And the list continues. Fairchild is approaching Infineon and ON Semiconductor for sale and Analog Devices and Maxim are reportedly in talks of a potential merger. This year, the global electronic industry has seen $110 billion in deals.
What are the reasons behind the unprecedented M&A activity of IC suppliers and other high tech manufacturers?
Reason 1: Margin pressure
As we mentioned before, it can cost over $100 million to develop a leading-edge chip. With today’s advanced technology, it is even harder. Moreover, worldwide PC shipments are expected to decline 9.5% in second quarter of 2015. We are also expected to see the global smartphone growth slow to 10.4% in 2015 from 27.5% in 2014. Fewer end products means less demand for chips, which means the revenue growth is not going highly support chip suppliers in such segment. The synergy brought by M&A is a feasible solution. The best proof is the Avago-Broadcom deal, which is estimated to help both companies save $750 million in expenses, expanding their operating margins to 40%.
Reason 2: Adding diversity to product lines
Chip suppliers focus on dominant areas of products, its sales are often tied with the seasonal cycle of the most popular consumer gadgets on the market. For investors, the seasonal revenue volatility raises the red flags when considering investing. This is where M&A can help. By merging with another company that has a different segment focus, semiconductor chip suppliers will be able to develop a better-rounded product profile to increase their bottom line throughout the years. This is why Dell plans on spending $67 billion to buy EMC to become a one-stop supplier for IT services instead of a single focused PC manufacturer.
Reason 3: Amount of cash available
A few of deals this year involve Chinese capital. Uphill bought ISSI and multiple deals involve Western Digital. The state strategy is to make China self-sufficient in semiconductors and reduce imports of ICs from foreign suppliers both state and private capital to buy foreign chip companies. The move of UNIC to invest in Western Digital and push Western Digital to buy SanDisk is a clear example that they want to precede into the memory market. With the amount of money and resource available, we are expecting to see more capital from China impact the global industry.
As a leading global independent electronic component distributor, Advanced MP Technology keeps a close look at the latest updates in the electronic supply chain to stay ahead of the curve. This allows us to provide the best sourcing service to our customers.