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The consolidation will continue

The semiconductor industry has undergone dramatic changes during the past few months. “Consolidation is necessary, and will continue,” says Enrico Corti, Vice President of EMEA Sales at ON Semiconductor.
A wave of mergers and acquisitions have been reshaping the chip industry in recent months. While consolidation was expected and – due to increasingly expensive production – also necessary, the speed of it took most by surprise. Avago Technologies acquiring Broadcom (plus LSI Corp. last year); Intel buying Altera, Infineon acquiring International Rectifier, Cypress buying Spansion; or NXP merging with Freescale (to name but a few).

One way of dealing with increasing expenses – some analysts believe that it can cost USD 100 million to produce a leading edge chip – for companies seems to be to join forces to shoulder the soaring technology costs.

The growth of the Internet of Things has also triggered a run on competitors; companies fear to be left behind in what may become a major market for tiny embedded chips and sensors. In such a deal, NXP acquired Freescale in an USD 11.8 billion deal that will create a player that cannot be overlooked. “The combination of NXP and Freescale creates an industry powerhouse focused on the high growth opportunities in the Smarter World” said Richard Clemmer, NXP Chief Executive Officer. Or in other words, a strong player within the IoT market.

Possibly in a reaction to the above announcement, the Santa Clara chip giant Intel offered USD 16.7 billion for Altera, which makes programmable logic chips. "Intel's growth strategy is to expand our core assets into profitable, complementary market segments," said Brian Krzanich, CEO of Intel.

Side Note:

ISSI stockholders approve acquisition by Uphill. Cypress is losing out.
One company that has been remarkably quiet, is Phoenix (Arizona) based ON Semiconductor. Dealing with the integration of California based Aptina Imaging – a USD 400 million deal from June 2014 – the company has been busy reaping the fruits of their labours. “It has been an exciting year for ON Semiconductor, both in terms of the expansion of our image sensor offerings with the Aptina acquisition, but also in terms of strong fiscal results,” says Mr. Corti.

There a necessity for consolidation, analysts say.

“Yes. I do agree with them. In general, the semiconductor market is heading in the direction of consolidation. There are more suppliers than are needed. If a market is not growing more than five percent annually, that market will consolidate.” Mr. Corti believes. And with that said, this chip maker, which has taken an active role in the consolidation process completing some 10 acquisitions since 2007, will continue to participate - though no specific details were shared.

Indeed, there’s probably more to come before the urge to merge is satisfied: Micron Technology, Maxim Integrated Products, Renesas and Xilinx are rumoured to be acquisition targets. Texas – on the other hand – is being urged to spend some money.
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