Mergers & Acquisitions in Semiconductor Industry

Mergers & Acquisitions in Semiconductor Industry

The past few months have been very eventful for the semiconductor industry. It started with NXP acquiring Freescale in March, then last week Avago bought Broadcom and just this Monday Intel confirmed the long-term deal to buy Altera. With those merge and acquisitions, the deal making in the semiconductor industry exceeded $65 billion this year already, and much likely, more deals are to happen.

There are number of forces behind driving those mega-mergers in semiconductor industry since late 2013. First and foremost is the development of new technologies, such as Internet of Things (IoT) and huge data centers which require more advanced components. The semiconductor technology has reached a point where it can cost over $100 million to develop a leading-edge chip , which is quite an investment even for fairly big company. To maintain their advantage against competitors, merger and acquisition (M&A) of companies with established technology is a natural choice. As Intel said in its statement, “The combination (Intel and Altera) is expected to enable new classes of products that meet customer needs in the data center and Internet of Things (IoT) market segments.” While sales of PC are declining, acquiring Altera could strengthen Intel’s profitable business: supplying server chips used in data centers. The shifting trend from personal computer to smart mobile devices is increasing the needs for high-end Intel chip to process the amount of data. This is also true for Avago, who built its business units focused on big data center with three previous deals: LSI Inc. in 2013, PLX technology in 2014 and Emulex earlier this May . Broadcom’s big Ethernet switches and network processors will help to extend the new business unit and also provide significant product lines to the mobile sector .

Another reason is the financial gains. Technology sectors have attracted many investors who have seen profits through M&A. The high stock prices after the mergers have rewarded Avago’s investors with its bold acquisition strategy, its stock price rose 7.8% with just the acquisition news . On the other hand, M&A could optimize operation cost and increase efficiency of R&D expense. Since Intel has already producing Altera’s FPGA devices in its fab , the merger is expected to help to streamline its operation and benefit inventors from within.

With the technology advance and involvement of investors, more mergers are expected to be on the way, Maxim Integrated Products and Xilinx, for instance. As the manufactures in upstream in the supply chain, the M&A are definitely going to impact the supply chain as a whole. A few areas that will change are:

  • Shorter line card: distributors, get ready to update your line card!

  • Change of part number: update your database,

  • Fewer suppliers: OEMs and ODMs, instead of 6 suppliers, you only have to deal with 3, sweet!

  • Price: unit price for products from those manufactures may change, be prepared

  • Obsolescence and new products: there will be obsolescence and new possibilities, such as processors with programmable fabric

As we write about M&A in chip makers, more news come out IO Electronics merge with CSM Electronics : both UK based EMS hope to combine their forces to dominate the subcontract manufacturing industry in UK. Will this be the beginning of M&A in EMS? Let’s see…

Like those industry giants, Advanced MP Technology (AMPT), as a leading distributor of electronic components, itself, was actually established through merger between MP Systems and Advanced Silicon Technology in 1994. By combining the strengths, resources and supplier bases of two successful companies, AMPT has been able to provide the best services to our customers for the past years. With continuous effort to stay ahead of the industry, and optimizing our operation process, we are confident to stand behind our commitment: 100% Customer Satisfaction.