We are in a historic era for consolidation among semiconductor manufacturers. Included in the announced mergers and acquisitions this year alone are:
- China’s Tsinghua Unigroup invests in Taiwan’s Powertech
- LAM Research acquired KLA-Tencor
- Western Digital bought SanDisk
- Microchip Technology bought Micrel
- Dialog announced its acquisition of Amtel
- NXP agreed to buy Freescale
- Avago bought Broadcom
- ON Semiconductor to acquire Fairchild for $2.4B
According to a recent article in the Wall Street Journal by Don Clark, the reasons for this market consolidation are relatively new to the industry: slowing growth and rising costs.
In the past, chip makers used acquisitions to obtain new technology. But, Clark writes that a different reason is becoming more prominent: “Many recent deals resemble consolidation waves in older industries, motivated mainly by trimming costs in areas like manufacturing, sales and engineering.”
For example, Avago projects that it can gain $750 million in annual savings starting in 2017 after it integrates Broadcom, according to Clark.
The article cites figures from Dealogic stating that the industry has seen $100.6 Billion in mergers and acquisitions in 2015 so far, compared to $37.7 Billion for all of 2014.
And that total is poised to go higher.
“Bloomberg reported last week that four chip companies — Analog Devices Inc., Maxim Integrated Products Inc., SanDisk Corp. and Fairchild Semiconductor International Inc. — were in talks concerning different deal options… ‘It’s buy or be sold,’ summed up Alex Lidow, chief executive of Efficient Power Conversion Corp., a startup he co-founded in 2007 after 30 years leading chip maker International Rectifier Corp,” Clark writes.