Since 2015, the semiconductor industry seems to have really entered the era of big mergers and acquisitions, and the big mergers and acquisitions that 

shocked the industry are crackling one after another like firecrackers.

On March 2, NXP announced a $11.8 billion acquisition of its American counterpart Freescale; on May 28, Avago announced that it would buy all of Broadcom for $37 billion; less than a week later, on June 1, Intel announced its biggest acquisition in 47 years. Acquisition of Altera for $16.7 billion

The latest news is that ISSI, which China's Wuyuefeng Capital had been looking for, agreed to be acquired by Cypress for $20.25 a share, and that Atmel was seeking buyers and entrusting Qatalyst Partners, an investment bank, to assist in the sale.

For a time, the integrated circuit seemed to become a "pig on the draught". "The bubble is too big now. The idea of making money from semiconductors is wrong, and there has not been an example of making money from the acquisition of semiconductors. Gu Wenjun, Chief Analyst of Xinmou Research, told reporters.

"With the occurrence of mergers and acquisitions, the number of enterprises in the industry will be greatly reduced. I think the next five years will be the key five years for the development of integrated circuits, probably the time for the differentiation, restructuring of integrated circuits and the great readjustment of the overall industrial structure. Wei Shaojun, chairman of IC Design Branch of China Semiconductor Industry Association, told reporters.

Second half to next year

There will be more mergers and acquisitions.

In fact, many experts interviewed by reporters are not surprised by the frequent mergers and acquisitions this year.

Gu Wenjun told reporters that M&A is a very normal phenomenon in the development of semiconductor industry. After several years of development, the semiconductor industry has gone from oligopoly heavy industry at the beginning to oligopoly monopoly at the back, to oligopoly alliance at present, and merger and acquisition is also an oligopoly alliance.

"This year's semiconductor industry M&A is expected, I think there will be more M&A in the second half of the year to next year. Unexpectedly, the scale and speed of mergers and acquisitions exceeded expectations at the beginning of the year. Lip-BuTan, president and CEO of Cadence and founder and chairman of Warden International, an international venture capital firm, told reporters.

Yes, mergers and acquisitions are a cliche for semiconductor industry, which is in its mature stage. There are many mergers and acquisitions every year. In 2014 alone, 472 mergers and acquisitions involving US$31 billion took place in the global semiconductor industry.

However, since the beginning of this year, mergers and acquisitions involve more money, larger companies involved, and faster transactions. According to Dealogic, a market research company, the value of M&A transactions in the semiconductor industry this year is more than $80 billion, the highest in the past 20 years.

Wei Shaojun pointed out to reporters that this is related to the three major backgrounds facing the semiconductor industry at present. First of all, the semiconductor industry has come to a high-cost era, fewer and fewer companies can keep up with the pace of the most advanced technology, we need to develop. Secondly, semiconductor client products are slowly entering a mature period, such as the shrinking of the large market of mobile phones and PCs, and the new market has not yet formed. Therefore, competition has entered a white-hot, and naturally there will be elimination and merger. Finally, the emergence of a new round of mergers and acquisitions is also a rule. By means of capital mergers and acquisitions, enterprises can be made as large as possible, in fact, in order to maintain the competitiveness of enterprises, so that they have a strong ability to resist risks when entering the era of high cost.

"This year is only the inevitable result of a quantitative change to a qualitative change," Wei Shaojun added. "Industry will encounter bottlenecks to a certain extent. With the accumulation of difficulties over time, competition will become more and more intense, and it will break out to a certain extent."

Through oligarchy alliances

Big M&A Looking for New Market

In fact, judging from the three most significant M&A cases of Enzhipu merging Freescale, Avago merging Bloom and Intel merging Altera since this year, this represents two different M&A modes in the semiconductor industry: either horizontally expanding, aiming at new markets, or vertically merging and integrating, enriching production. Product line, optimize industry and expand large-scale.

"Intel's acquisition of Altera is more aimed at new markets, through product portfolio innovation, to enhance its core competitiveness in new areas." Wei Shaojun told reporters.

This new market is large cloud data centers and the Internet of Things. As we all know, Intel's traditional strength lies in PC processors, which do not occupy a favorable position in the mobile phone market after PC, and need to find new market growth point urgently.

Intel CEO Brian M. Krzanich has publicly stated that he believes that data center business (such as servers, memory chips) will be Intel's next growth engine, and its growth will offset the negative impact of PC sales.

In this area, Altera's main FPGA has become an increasingly important partner. Because of its ability to speed up search, sorting and alphabet matching algorithms, and programmable response to a variety of applications, FPGA has been used by Microsoft, Baidu and other companies in their data centers. Although it already has a market share of nearly 95%, Intel clearly wants to ensure that Altera continues to be an absolute leader by bringing it under the leadership of one of the leading FPGAs.

"Looking for new markets through oligopoly alliances and big mergers and acquisitions is an important trend in the semiconductor industry in the future." Gu Wenjun said.

Intel's acquisition of Lantiq in February was clearly aimed at expanding its product line into markets including DSL, optical fiber, LTE, retail and the Internet of Things.

Comparing with Intel, the mergers and acquisitions of Freescale, Avago and Bloomcom by Enchipu are the typical types of mergers and acquisitions to strengthen the large-scale and optimize the industry. Of course, they have different characteristics.

Wei Shaojun pointed out to reporters that Avago's acquisition of Botong is more from the perspective of enriching the product line to realize the optimization and cooperation of the complementary upstream and downstream industries.

According to reporters, the accession of Broadcom has strengthened Avago's technology in mobile devices, data centers and the Internet of Things. The combined company will be valued at $77 billion, with annual revenue of about $15 billion, and will form the world's largest supplier of communications chip solutions for consumer electronics and commercial markets.

Unlike Avago's acquisition of Bloomcom, the product lines between Enzip and Freescale overlap more and are more typical of large-scale mergers and acquisitions between peers.

Although the purpose of mergers and acquisitions is different, Chen Liwu pointed out to reporters that the original intention of these mergers and acquisitions is to strengthen the company's market competitiveness in certain specific or vertical areas. From this, we can see that automotive electronics, cloud computing, big data and so on are the top priorities of technological innovation in the next 10 years.

Many companies

Mergers and acquisitions for mergers and acquisitions

Gu Wenjun stressed to reporters that at present, we can see that a large number of acquired companies are from the United States, because of pressure from investors and shareholders, many companies are mergers and acquisitions for the sake of mergers and acquisitions, through mergers and acquisitions to promote the accountability of shareholders.

As a matter of fact, after the Internet era and the mobile Internet era, the market competition of PC and mobile phone, which are the two largest semiconductor growth, is becoming more and more fierce, and the price of chips continues to decline. In the case of mobile chips, Qualcomm, the dominant player in the field of mobile chips, has lowered its average gross profit rate target to about 47% in 2014. But the new market is not yet mature.

The rise and competition of Chinese companies have accelerated the decline of gross interest rate and net profit of semiconductor industry. "30% or even 20% of the gross interest rate of Chinese companies can be achieved, resulting in a particularly low gross interest rate and net profit. The shareholders and investors in the United States feel that semiconductors do not need to do without such a high gross margin." Gu Wenjun explained.

Shi Qiang, a researcher at SEDI think tank's Institute of Electronic Information Industry, told reporters that it was because of the fierce competition that some enterprises began to decline in profits and even suffered losses, which made shareholders have the desire to sell or split related businesses.

I believe many people are surprised that Avago, ranked 13th, can snack down Bloom, ranked 9th. But in fact, in recent years, the 24-year-old Broadcom has shown signs of fatigue, in recent years, revenue has been difficult to achieve growth. Although Broadcom earned $1.41 billion in 2014, revenue grew by only 1.5% to $8.4 billion.

Mergers and acquisitions do usually occur with the rise of the company's market value. For example, on the day Avago announced its acquisition of Bloom, Bloom's share price jumped 22%, and Avago's share price rose 7.8%. Intel's offer to buy Altera was 56% higher than when news came out in March, and Altera's share price soared from $34.58 in March to $51.20 in June 1. Recently, there was an interest in selling Atel, but also on the day of the news, the stock price rose 3.56%, the highest rise in the market reached 7.2%.

"Mergers among international giants are highly expected because they have good core business support. The product line improvement and product value-added brought by mergers will also stimulate further profit growth." Shi Qiang explained.

Of course, the result of M&A is not only the rise of market value, but also the change of industrial structure.

Intel's acquisition of Altera, which accounts for 38% of the market share of FPGA, will inevitably change the competitive situation of the FPGA market. The merger of NZP and Freescale will produce one of the world's largest suppliers of automotive electronics IC.

"Such large-scale mergers and acquisitions will inevitably produce large enterprises and bring greater pressure to the small enterprises that follow. But from an innovative point of view, the original two competitors will become a competitor, and the future space will become larger. Wei Shaojun pointed out.

Chen Liwu believes that system manufacturers will be relatively more vulnerable. Because those traditional, heavily CHIP-dependent systems manufacturers will face fewer choices, and will be subject to technical and price pressures.

Integrated circuits have become

"Pig on the draught"?

In addition to the big mergers and acquisitions among international giants, in this wave of mergers and acquisitions, the power from China can not be ignored. Since the establishment of the National Investment Fund for Integrated Circuit Industry in June last year, all kinds of capital in China have been eager to try, one after another, to enter the field of semiconductor.

Earlier, Li Tingwei, president of Broadcom Greater China, had publicly stated that the trend of the Asian era had been reflected within Broadcom.

"The purpose of M&A or restructuring of China's semiconductor industry is to accelerate the pace of progress of China's semiconductor industry, to quickly integrate with international large factories and advanced technologies, and to provide support for some key technologies and products in the country." Chen Liwu told reporters.

In April 2015, after the successful acquisition of Singaporean company Jin Kexing Peng by Changdian Technologies in the first year, Tsingxin Huachuang, CITIC Capital and Jinshi Investment completed the acquisition of Omni Vision worth $1.9 billion. In May 2015, Beijing Jianguang Asset announced that it would acquire Nzhipu's RF power at a price of $1.8 billion. Division RFPower.

This is just a case of successful acquisition. In less than half a year, the news of foreign semiconductor enterprises bidding has been coming out frequently in China's capital market. For example, Zhongxin International intends to purchase Korea Eastern High Tech, CEC and Datang Telecom to participate in the bidding for Marvell, Wu Yuefeng Capital to participate in the bidding for ISSI and so on.

But for a time, the integrated circuit seemed to become a "pig on the draught". "The bubble is too big now. The idea of making money from semiconductors is wrong, and there has not been an example of making money from the acquisition of semiconductors. Gu Wenjun stressed to reporters.

Gu Wenjun warned that there is a lack of large enterprises in China that can undertake and manage mergers and acquisitions. Mergers and acquisitions are very risky, especially those stripped product lines, and try not to buy them. Because IP, technology and talent are universal, it is difficult to judge and evaluate the value of the original company because they can not really be separated from the original company. "Therefore, international semiconductor companies are usually mergers and acquisitions companies, rarely to buy product lines."

Wei Shaojun said that such a "bubble" is fair and reasonable under the role of a highly profitable capital market, but he also pointed out to reporters that the bubble can not be too much. At present, the price of large domestic acquisitions of overseas enterprises has been somewhat high.

Wei Shaojun suggested that internal M&A should be strengthened in the future. In his view, external integration only promotes the growth of the industry, and it does not help the growth of the industry. "If we can form internal mergers and acquisitions, China's semiconductor industry is likely to undergo a real qualitative change."