No chips but semiconductor M&A activity is booming

Semiconductor chips have been a hot topic over recent years.

They were pushed into the limelight following the surging demand across industries and the shortages triggered by the fallout from the pandemic. The insurmountable demand, paired with extremely limited supply, has led many companies to experience whiplash over the past couple of years.

Despite this, the appetite and need for chips has not lessened, and so the impact of the shortages has continued to cause disruption. From automotive manufacturers making unprecedented moves to sell certain vehicles without all the chips they were designed to include, to electronics companies producing fewer goods because they do not have the chips they need – the impact has been felt far and wide.

However, while there are not nearly enough chips to go around, there has still been plenty of attention and capital flying around the semiconductor industry. According to Gartner, Inc., the global semiconductor revenue set records in 2021, reaching $538.5 billion. Additionally, semiconductor merger and acquisitions set records in the first quarter of 2021 – a trend that has continued to spike.

The upswing in M&A activity

In 2021, we saw Marvell’s $10B acquisition of Inphi in April, then Analog Devices purchased Maxim Integrated for $20.8B in September, and to round the year off there was Intel’s sale of its SSD business to SK hynix for $7B in December.

However, it was really 2022 that started off with a bang when AMD completed its nearly $50B acquisition of Xilinx, setting a semiconductor industry record. At the same time, Intel purchased Tower Semiconductor for $5.4B.

While there have been quite a few deals on the table, not all of them have been a success with some of the biggest deals falling through. The planned acquisition of UK chip design firm Arm by US technology titan Nvidia captured headlines and was supposed to be the largest deal in semiconductor history when it was announced in September 2020.

However, as chips became essential for more critical industries like healthcare and defence, governments started paying more attention. Arm licenses their design technology to a number of Nvidia’s competitors like Qualcomm and Huawei, and the idea of Nvidia taking them over triggered US and UK watchdogs to each open their own investigations, ultimately forcing Nvidia to walk away.

Similarly, Taiwanese silicon wafer supplier GlobalWafers failed to buy German chip manufacturer Siltronic earlier this year. The cause was German regulators failing to complete a review in time due to concerns over tech sovereignty. Additionally, before the shortage began back in 2018, Qualcomm came up short in its bid to take over Dutch chipmaker NXP, when the deal failed to get Chinese antitrust approval. The government there had veto power over the deal since two thirds of Qualcomm’s sales come from China.

M&A does not always result in increased capacity and availability; the AMD acquisition of programmable logic maker Xilinx has yet to resolve shortages and long lead times for field-programmable gate arrays (FPGAs). Commodity IQ forecasts that FPGAs will remain in tight supply into the second half of 2023, with lead times rising from two and a half times the Commodity IQ index baseline to nearly three times in Q3 2023.

The clear thread throughout these failed mergers are issues with regulatory bodies. In some cases, it was simply an issue of time, but in other cases there were legitimate concerns due to the ubiquitous nature of semiconductors. As they become more prevalent, we should expect to see further scrutiny of mergers and acquisitions like these.

Why now when the chips are down?

The increased activity is the result of a confluence of factors, not the least of which is the pandemic, rising demand across industries, and ongoing shortages across numerous categories.

Given the sheer complexity of semiconductor production, a process that can take up to 15 weeks, the industry cannot simply “make more” in response to unparalleled demand. The only other recourse is to shore up funding, increase manufacturing capability, strengthen supply chains, and forge a path forward. Mergers and acquisitions allow organisations to accomplish many of these things quickly.

They also allow organisations to gain a competitive edge for themselves, as well as creating valuable opportunities for stronger industry growth. In some cases, the immediate benefit is valuable market share in key industries, but in other cases the result is increased manufacturing capability.

The merger and acquisition activity over the past few years is important, not only because of the volume of capital exchanging hands, but because it shifts the landscape of the semiconductor industry by consolidating capabilities and enhancing resources for further capacity.

These consolidations are meant to bolster resources, increase supply chain resilience, and ultimately improve capacity. Given the constrained nature of current semiconductor capacity it certainly makes sense for organisations to empower themselves through these types of purchases, and with the additional technology and capacity, we should see real-world benefits as a result.

What does the future hold?

Looking ahead, with the record-breaking mergers that we have witnessed, as well as the industry seeing record-breaking revenue, we can expect to see more merger and acquisition activity in the future.

Additionally, demand across industries shows no sign of slowing down as semiconductors are at the foundation of many modern and emerging technologies. Insights from Supplyframe’s Commodity IQ forecast for H1 2023 indicates that 27% of semiconductor pricing across all major semiconductor categories will increase, compared with 76% in H1 2022.

Considering semiconductors and passive components for H1 2023, nearly 30% of pricing dimensions are anticipated to decrease. From Q1 through Q3 2023, less than 20% of semiconductor pricing will rise and just over three-quarters of integrated circuit (IC) pricing will stabilise.

We can also expect to see technology continuing to define the major trends for the semiconductor industry. Whether it is 5G rollout, autonomous vehicles, or the internet of things (IoT), the industry is growing rapidly, and new avenues of demand are emerging every day. All of this will inform future developments in both capacity, production, and the design of semiconductors.

About the Author

John Ward is Senior Director, DSI Solutions at Supplyframe. Supplyframe is the leading Design-to-Source Intelligence platform for the global electronics value chain, with solutions that interpret billions of intent, demand, supply and risk signals to deliver insights through the design-to-market product lifecycle. A community of over 10 million engineering and supply chain professionals engage with our search, media, and SaaS solutions to optimize in excess of $120 billion in annual direct materials spend. Supplyframe is headquartered in Pasadena, California, with offices around the world.

Featured image: Janpen

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