Market Insight

Power, revenue and profitability drive groundswell of consolidation in semiconductor industry

July 10, 2015  | Subscribers Only

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A number of high-profile acquisitions by top semiconductor suppliers in the last few months have raised both interest and concern by customers and suppliers alike regarding the evident accelerating pace of consolidation in the semiconductor industry. 

In May, Avago Technologies announced plans to acquire Broadcom for $37 billion, the largest acquisition deal in the history of the technology industry. Avago began growing its business through acquisition with its purchase of LSI in 2014.  However, the Broadcom acquisition is a much larger deal where it is acquiring a company that is larger than itself.  In its announcement Avago noted that there are great cost synergies to be realized and anticipates saving $750 million annually in 18 months.  In addition the product portfolios for communications solutions between the two companies are highly complementary and strengthen their position in that market significantly.

The Avago announcement followed a wave of significant mergers and acquisitions (M&A) among top chip suppliers, including NXP and Freescale Semiconductor; Infineon and International Rectifier; Cypress Semiconductor and Spansion; Qualcomm and CSR; Globalfoundries and IBM Microelectronics; and Avago and Emulex. Shortly after the Avago-Broadcom news broke, Intel announced plans to acquire Altera.

The semiconductor industry has seen a steady increase in consolidation among the top 10 suppliers since the 2008 economic downturn. Based on announced M&A plans, IHS Technology projects that the top 10 this year will capture 55.3% of the industry’s $366.7 billion in estimated annual revenue, up from 44.3% in 2008 (see Figure 1). Projections also show that the top 25 companies will capture 74% of total semiconductor revenue this year, while nearly 270 companies will be chasing the remaining 26%.

What is the profile of consolidation in the major market segments of the semiconductor industry? Are all market sectors experiencing consolidation? What is motivating the increased pace of consolidation? How is consolidation influencing profitability in the industry? How as the distribution of financial deals changed between company acquisitions, business sales, joint ventures & spinoffs and business exits?  Are the deals growing in volume and size in recent years?

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