M&A frenzy in the semiconductor industry

The semiconductor industry is witnessing a flurry of M&A activity.

In just the first six months of 2015 alone, announced semiconductor acquisition agreements had a combined total value of $72.6 billion (Figure 1), which is nearly 6x the annual average for M&A deals struck during the five previous years (2010-2014), according to research firm IC Insights.

IC Insights’ new 185-page Mid-Year Update to The McClean Report examines the recent surge of M&A activity, including China’s aggressive new programs aimed at bolstering its presence in the semiconductor industry.

It would be hard to characterise the huge wave of semiconductor mergers and acquisitions occurring in 2015 as anything but M&A mania, or even madness, said IC Insights.

Figure 1.

Three enormous acquisition agreements in 1H15 have already catapulted 2015 into the M&A record books. First, NXP announced an agreement in March to buy Freescale for $11.8 billion in cash and stock. In late May, Avago announced a deal to acquire Broadcom for about $37 billion in cash and stock, and then four days later (on 1 June), Intel reported it had struck an agreement to buy Altera for $16.7 billion in cash. Avago’s astonishing deal to buy Broadcom is by far the largest acquisition agreement ever reached in the IC industry.

In many ways, 2015 has become a perfect storm for acquisitions, mergers and consolidation among major suppliers, which are seeing sales slow in their existing market segments and need to broaden their businesses to stay in favour with investors.

Rising costs of product development and advanced technologies are also driving the need to become bigger and grow sales at higher rates in the second half of this decade. The emergence of the huge market potential for the Internet of Things (IoT) is causing major IC suppliers to reset their strategies and quickly fill in missing pieces in their product portfolios.

China’s ambitious goal to become self-sufficient in semiconductors and reduce imports of ICs from foreign suppliers has also launched a number of acquisitions by Chinese companies and investment groups.

IC Insights believes that the increasing number of mergers and acquisitions, leading to fewer major IC manufacturers and suppliers, is one of the major changes in the supply base that illustrate the maturing of the industry.

In addition to the monstrous M&A wave currently taking place, trends such as the lack of any new entry points for start-up IC manufacturers, the strong movement to the fab-lite business model and the declining capex as a percent of sales ratio all promise to dramatically reshape the semiconductor industry landscape over the next five years.

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