Granted the bidding war between HP and Dell for 3Par Inc. has grabbed the headlines this week (cf. the latest as we go live today from WSJ.com and Bloomberg, or just about anywhere in business news), but there's more to the M&A situation than the mainstream press is picking up.
M&A activity for the semiconductor industry is up 100% for 1H10 after experiencing a 14-year low in 2009, according to the July issue of Manufacturing Market Insider (MMI). As MMI explains, the economic rebound is fueling this activity for both sides of the table: buyers are seeing a window to grow their business and use some of the cash reserves saved from a frugal last year; sellers are seeing an opportunity to get better than bottom-dollar for their business (as would have happened last year with poorer valuations) and still make an exit.
From the giants such as HP and Dell, Tier 1 fabs, top tier EMS and ODMs, to lower tier, smaller companies across the chain M&A activity has been high and continues to mount (cf. this recent statement by Fujitsu for a buyer's position and this WSJ.com piece about Nokia Siemens for a seller's position). The outcome of this type of intensive M&A period is supply chain restructuring (as we discussed in an earlier post here, and is looked at from an OEM perspective in the August MMI issue, released today), increases in localization, customer demographic attention, and aggressive market segment plays, to name a few.
During times of shortages such as we have been experiencing this year (and are set to continue through this year, as we discussed here), this type of industry consolidation (from M&A activity reducing the number of companies competing in any given market segment) is likely to further tighten supply issues.
While many industry and financial research firms have been noting for a while that the semiconductor industry is likely to only see less than a dozen fabs by 2014, many of us have likely not appreciated the impact this will have on our industry. Just because industry consolidation (from fabs on down the supply chain, cf. this Solid State Technology piece) is occurring, doesn't mean that demand will ease. Rather, there will be even fewer sources for product along the supply chain, so competition will heat up to win time on the lines, product deals, etc. A healthy, lean and highly competitive supply chain will likely result, and that is a good thing from a financial analyst's armchair; but not all of us sit in those chairs.