Semiconductor industry faces more M&As

Mergers and acquisitions are increasing, thanks to pricing pressures from new mainland China and Taiwan entrants.

The wave of consolidations in the semiconductor industry reported by the Wall Street Journal in October has continued unabated throughout the rest of 2015. Mainland China's state-owned Tsinghua Unigroup, which is with the investment arm of Tsinghua University, has been part of the spending spree, recently purchasing two Taiwan chip packaging companies: Silicon Precision and ChipMOS Technologies. The Tsinghua Unigroup also bid $23 billion for the US company Micron earlier last year, but that deal was rejected. In all, the Tsinghua Unigroup has disbursed more than $20 billion in acquisitions in 2015.

Tsinghua is one of the larger players in this market now, and it represents mainland China's aggressive expansion in this space, but it is hardly the only one taking part. US-based Microchip has put in a bid for Atmel, reportedly at $9 per share, exceeding the valuation by Dialog Semiconductor, which was looking to acquire the company through a cash-and-stock deal. Microchip already acquired Micrel, "one of Silicon Valley's oldest independent semiconductor companies," earlier in 2014 for $839 million.

By October 2015, $100.6 billion had already been spent on mergers and acquisitions in the semiconductor industry, according to data from Dealogic. New entrants into the market from mainland China and Taiwan have helped keep pricing pressures on smaller semiconductor companies, so M&As have sped up to help preserve profit margins.

It does not look like things will cool down this year either. A survey from KPMG LLP of industry leaders shows many believe M&As will accelerate in 2016. The expected areas with the most M&A activity are the Americas with 45 percent, Asia Pacific with 36 percent and Europe with 18 percent.

The biggest concerns for the industry in 2016 are increasing R&D costs, finding technology breakthroughs and average sale price erosion.

Microprocessors are expected to be more importantfor growth in the industry than sensors and memory, with the networking and communications, computing and automotive end markets anticipated to be the biggest drivers of growth.

Unsurprisingly, mobile handsets are expected to be the biggest application market, with mainland China seen as the most important region for revenue.

Automotive sensors and infotainment application markets are also considered potentially significant growth catalysts. Thanks to the Internet of Things, the vehicle industry has a lot more prospects now for microchip growth.

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