Recent news of major chipmaker consolidations should dispel any doubt about the expanding and shifting nature of the semiconductor and electronics industry. On the heels of the news of NXP's moves to acquire Freescale, valued at roughly US $16.7 billion, we now have, at the end of March, the news that Intel is moving to acquire Altera, valued at US $10.5 billion. These two March deals follow the earlier news of Cypress Semiconductor and Spansion, Lattice Semiconductor and Silicon Image, Qualcomm and CSR, as well as Infineon and International Rectifier, among others in 2014. Importantly, as Bloomberg also comments, these strategic acquisitions will propel more moves by other chipmakers to ensure their market positions and capabilities through acquisitions this year.
Intel's strategic market move
Increasing production capabilities and expanding to new markets is expensive. Acquisitions certainly offer tremendous and rapid market opportunities for chip manufacturers, particularly given the reduced risks and quick return on investment (ROI) that can be realized.
Taking the most recent news first, Intel's moves to acquire Altera would add to Intel's capabilities the second-largest supplier of programmable logic devices (PLD) and system-on-chip (SoC) field programmable gate arrays (FPGAs), as DigiTimes and IHS commented. For Intel, the roughly US $10 billion purchase gives it significant increases in chips for industrial, telecommunications infrastructure, and military/aerospace applications, Altera's core. But perhaps the key value opportunity for Intel, according to Reuters, is from the programmable chips: "Altera's value to Intel is its programmable chips, which are increasingly being used in data centers, where they are customized for specialized functions such as providing web-search results or updating social networks." With the growth of IoT and connected devices across sectors, this added capability for Intel will give it strategic strength particularly in more flexible chips which is not a current core competency and help to grow Intel's best growth driver, the data center business, as WSJ notes. and move the new, merged company, to be the second-largest industrial semiconductor company behind Texas Instruments; moving Intel up from fourth and Altera from 29th, according to DigiTimes' reporting of IHS' analysis.
NXP-Freescale's new powerful portfolio
The early March announcement of NXP's acquisition of Freescale also underscores the M&A activity over the past few quarters among chipmakers to increase their market positions and competitiveness especially in industrial and automotive markets where it will become the leader in automotive semi chips because combining these companies covers a vast amount of what is demanded of auto semi chips, from ADAS to security, sensors and monitors to powertrain, etc., as EETimes Asia reviewed. The real strategic opportunity will be, as with Intel-Altera, for IoT competitiveness and communications chips/infrastructure. To that end, once NXP-Freescale do merge, their combined strength in high-performance RF will lead that global market sector, as noted by Semiconductor Today. More generally, Semiconductor Today summarized the broader market opportunities from the merger:
The merger creates a high-performance mixed-signal semiconductor firm with combined revenue of more than $10bn, reckoned to become the market leader in both automotive semiconductor solutions and general-purpose microcontroller (MCU) products. The combined firm will also aim to capitalize on the growing opportunities created by accelerating demand for security, connectivity and processing.
Consolidate to expand
In short, the M&A activity that is dramatically changing the face of the upstream (chip manufacturing) end of the global supply chain is still underway. There are likely to be more consolidations and changes as CAPEX is used to quickly extend market capabilities and gain competencies rather than build from scratch or through expansions.
Importantly, these M&A events are underscoring a key finding in the most recent Smith Global Supply Chain Survey, the report to come out later this month, which highlights the broadening of opportunities and demand drivers both across market sectors and component types. These two March M&A announcements certainly demonstrate the strategic goals to meet the wider market demands for solutions to continue to grow IoT, industrial automation, data centers, and communications, to name key drivers. Additionally, these consolidations are raising significant concerns along the global supply chain, as respondents to the Smith survey indicated, because these changes do affect supplier bases and alter the supply chain balance and pricing. Global services providers and leading independent distributors such as Smith are seeing significant increases in demands for expanded services, improved market agility solutions, and inventory support as a result of these supply chain changes.