China to keep fishing for foreign chipmakers
Print Edition
China’s interest in foreign chipmakers in an already record year of deals has been quickly read by rivals as a sign that mergers and acquisitions will get more competitive and target companies will get more expensive.
Chipmakers have announced more than US$80 billion worth of M&As this year. Chipmakers are acquiring peers to expand capacity and capabilities ahead of an explosion in demand for all kinds of semiconductors necessitated by the Internet of Things.
“The days of growing organically through technological advantage are over,” said Hidetoshi Shibata, chief financial officer of Japan’s Renesas Electronics Corp.
“Scale and having a wide variety of solutions have become crucial,” he said.
However, a Chinese buying spree could push the value of merger targets beyond rivals’ reach.
Tsinghua Unigroup Co is leading China’s development of a national semiconductor industry with US$10 billion spent on M&As over the past two years and plans for almost US$50 billion more over the next five.
“Chinese companies do pay quite a lot,” Shibata said.
“The concerns are they jack up M&A valuations and become huge rivals.”
Many Chinese deals are by privately held parties, such as Tsinghua, which in November earmarked almost US$13 billion for a memory chip factory. In April, a group of Chinese investors agreed to buy United States-based smartphone camera chipmaker OmniVision Technologies Inc for about US$1.9 billion in cash.
“It’s not over,” Handel Jones, chief executive of chips consultancy International Business Strategies, said of overall chip sector M&As.
“We know of a number of additional activities going on; some will be announced in the next couple of weeks,” he said, adding that he expects there to be some consolidation among companies making chips for memory and power management.
Chipmakers’ strategies have diverged since the 2011 peak of the industry’s mainstay market of personal computers. Some have bet on energy-efficient chips for smartphones, fail-safe chips for vehicles, hefty server chips powering databases, or chips for household goods under the Internet of Things.
“There are too many potential variables in play for any participant to feel secure, and both industries (chips and PCs) have a history of creating big winners and big losers based on correctly anticipating the technology path,” said Bob Merritt, an independent consultant.
The result is firms merging to pool skills and technology, with early movers prodding those fearful of being left behind. Microsemi Corp of the US became the latest deal-maker last week with a US$2.5 billion offer for compatriot PMC-Sierra Inc.
China’s role has been as much to confuse as galvanize.
Some deals, such as Tsinghua Unigroup’s 15 percent purchase of Western Digital Corp, involve low-margin, commodity-type hard disk drives and memory chips with seemingly very limited growth prospects.
Analysts attribute much of the activity to Chinese aspirations as an emerging superpower to become self-sufficient in standout industries, by controlling all aspects of a business and developing products to rival established players.
With the industry already in flux, China’s ambition makes it difficult to predict how the landscape will change.
“It’s hard to start making predictions because people are doing things outside of what I would think would be normal behavior,” said analyst Gus Richard at Northland Securities.
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