We’ve seen Intel, Avago, NXP (to name but a few) complete huge deals and with an increase of over 100% over the activity in 2014.
But why? Well there are several factors…
As we become increasingly connected, more and more semiconductor chips are required. According to PWC, chip demand is to increase by over 30% to over $430 billion by 2019 with IoT, industrial and automotive applications being the key driving factors.
Connected networks or devices are increasingly driving suppliers to provide their customers with solutions from reduced sources and not chips from multiple parties; this also has the added value of simplifying the supply chain. Hence chip companies are acquiring complimentary technologies so they can provide these solutions. Jalal Bagherli, CEO of Dialog quoted “Customers more and more want to have fewer suppliers, more value, and pieces that work together,”
But what else is driving this consolidation?
Well higher R&D and production costs are reducing ROI and China’s investment of $160 billion over the next decade into locally based semiconductor companies in order to increase its self-sufficiency has led to flight for scale. In addition you could say “it’s to hunt or be hunted” as it is considered the only way to stay competitive in a consolidating industry.
But also mergers generally lead to cost-cutting and strategies to improve free cash-flow but more importantly inorganic growth does increase speed to market. All these factors will still be prevalent as we move into the New Year but whatever happens the digital world will require more and more semiconductors.
So what does 2016 hold for us, well here are few of my random predictions?
Wishing you a Merry Christmas and Happy New Year!
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