Industry Mergers Accelerate China'S Semiconductor Mergers And Acquisitions

Deep technology

Some analysts believe that the epidemic will slow down the growth of China's semiconductor industry to a certain extent. Many manufacturers are facing delays in increasing production and sales plans, thereby slowing down the merger and acquisition actions of Chinese manufacturers. However, the epidemic may also make it difficult for SMEs to finance in the next few years, which will also promote mergers and acquisitions among a number of small and medium-sized semiconductor enterprises.

In February 6th, the research report released by IC Insights, an integrated circuit industry analyst, showed that the M & A activities in the semiconductor industry rose in 2019, representing a year-on-year increase of 22% to $31 billion 700 million. In 2019, it also became the third largest sum of mergers and acquisitions in the history of the industry.

The M & a boom in the semiconductor industry peaked at a total of $107 billion 700 million in 2015. However, in the next three years, the total amount of mergers and acquisitions continued to decline, slowing down. However, in the slightly weaker global semiconductor market in 2019, the number of M & A transactions in the industry exceeded 30, of which 7 exceeded 1 billion US dollars.

According to the analysis, 5G, AI and vehicle and other emerging fields have gradually achieved commercial volume production, making them the main driving force for the development of the industry. This has created a high growth market demand, but also helped the semiconductor industry gradually recover.

However, Sino US trade relations are adding uncertainty to the M & A activities in the market, which may indirectly affect the planning intention or choice of mergers and acquisitions. For Chinese semiconductor manufacturers, overseas acquisitions may be faced with some difficulties in the process of audit.

In addition, the recent outbreak of new coronavirus has also brought certain variables to China's semiconductor manufacturers' m & A activities. Some analysts believe that this will slow down the growth of China's semiconductor industry to a certain extent. Many manufacturers are facing delays in increasing production and sales plans, thereby slowing down the merger and acquisition actions of Chinese manufacturers. However, the epidemic may also make it difficult for SMEs to finance in the next few years, which will also promote mergers and acquisitions among a number of small and medium-sized semiconductor enterprises.

The M & A activities in the semiconductor industry were warmed up in 2019. Song Wenhui photo

Accelerating mergers and acquisitions in the global semiconductor industry

In the past ten years, with the gradual emergence of a series of new technologies, such as machine learning, artificial intelligence, automatic driving, biological information recognition, computer vision, virtual / augmented reality, high-speed wireless network and the Internet of things, the trend of integration is gradually emerging as the semiconductor industry is becoming more and more mature.

Gu Wenjun, chief analyst of core research, told reporters in the interview on twenty-first Century economic report that, as a whole, international mergers and acquisitions are continuing. This is mainly due to the industry entering the era of "diversification". A large number of "killer" products are fewer and fewer. Large semiconductor companies need to improve their performance through financial means or product mix.

From the perspective of annual M & a scale, 2015 is a watershed. In 2015 and 2016, the total amount of M & A in the global semiconductor industry reached 107 billion 700 million US dollars and 100 billion 700 million US dollars respectively (adjusted to 59 billion 800 million US dollars later). In the previous 2010 to 2014 years, the average annual total M & A in the global semiconductor market was only $12 billion 600 million. Many analysts at that time bluntly stated that the semiconductor industry is undergoing a stage of intense integration.

Although this trend has slowed down in the following three years, the total annual M & A in the semiconductor sector remained between us $50 billion 600 million and 2015 to 2019. After 2015, maintaining the total M & a size of more than US $25 billion a year has become a new normal for the semiconductor industry.

Compared with the past, the traditional growth mode of semiconductor industry relying on existing resources and business is showing weakness in recent years. With the gradual maturity of the market, the research and development of the next generation of technology will be extremely expensive, which has become the consensus of the industry. It is more difficult for a company to maintain a high degree of flexibility in a diversified market in order to cope with industrial change. The merger between enterprises provides a more efficient solution.

"The traditional organic growth of the semiconductor industry has ended," a market consultant, Accenture, said in a January report. Accenture believes that the growth of R & D costs, the speed of technological iteration, and the diversified needs of customers have compressed the past time and capital to support the organic growth of semiconductor enterprises. As an alternative, leading semiconductor manufacturers have taken M & A as a new growth strategy. The result is a sharp integration of the industry. According to the agency statistics, there are 130 semiconductor companies listed in the United States more than 100 million dollars in market value 10 years ago, and only 72 by the end of 2018.

"Super merger" or difficult to reproduce

Xu Shaofu, an analyst at Ji Bang consulting, told reporters on twenty-first Century economic report that the development of 5G communication technology was the most concerned topic in 2019. Besides the realization of mass production, the advantages of high 5G transmission and low latency also expanded the related applications of AI and automotive industry, such as AI cloud computing and automatic driving.

"5G, AI and vehicle become the main thrust of the development of semiconductor industry, creating a high growth market demand, thus contributing to the gradual recovery of M & A in the semiconductor industry in 2019." In addition, Xu Shaofu further pointed out that the M & A in 2019 is quite diverse, which reflects that the industry is accelerating the mastery of products and related technologies to cope with the expansion of market demand.

However, due to the approval of regulatory authorities, the data of merger and acquisition in 2019 are still likely to change.

For example, in 2016, the total amount of M & A in the semiconductor industry was $100 billion 700 million in 2016. However, the transaction of Qualcomm, which was highly valued by the outside world ($39 billion), bought the NXP business after two years, regretted "aborting", and finally adjusted the data in 2016 to US $59 billion 800 million. The average annual total in the past 5 years changed from US $58 billion 800 million to US $50 billion 600 million.

In the 2019 transaction, Infineon, a German company, was still waiting for the regulatory authorities to approve the acquisition of US $9 billion 400 million Plath (Cypress), which is also the largest sum of IC Insights statistics in 2019.

Gu Wenjun pointed out that a major feature of the M & a field in 2019 was the active M & A of medium or first tier companies and the product mix. But he also said that "super merger" will be less and less in the future. "This is mainly due to the recognition of the importance of semiconductors. Many countries have set up very high audit standards in mergers and acquisitions." He said, "policy restrictions will lead to the reduction of large mergers and acquisitions."

Accenture data showed that from 2013 to 2015, only 3 cases of semiconductor mergers and acquisitions were blocked or terminated by factors such as "government intervention" or "regulatory restrictions", and this figure rose to 14 from 2016 to 2018. The agency also pointed out in the report that the more large-scale transactions are now, the easier it is to encounter longer audits.

Take the $9 billion 400 million acquisition of Infineon Plath as an example. The largest semiconductor acquisition in 2019 was originally expected to be completed by the end of 2018 or early 2019, but so far it is still waiting for the regulatory authorities to pass.

However, Gu Wenjun stressed that despite the stricter regulation, the role of industry rules will lead to continued M & A activities. Xu Shaofu also said in an interview that from the development trend of the medium and long term semiconductor industry, the growth of new applications and demand is "quite promising."

The epidemic brings variables to China's semiconductor market.

Accenture reports that changes in the semiconductor industry environment are also bringing about changes in enterprise strategy. Some enterprises are intended to further expand the share of the existing market and customer groups, and some semiconductor companies are growing by expanding to the upstream and downstream of the industrial chain; more semiconductor companies are entering the new market of products and services, though this is also facing corresponding risks.

However, Chinese manufacturers have not "integrated" the trend of M & A in the global semiconductor industry. At the same time, the number of small and medium-sized enterprises in China's semiconductor industry has increased rapidly. Previous analysis has pointed out that the merger between giants will lead to an increase in bargaining power of Chinese manufacturers, and may further affect the survival space of upstream materials and equipment manufacturers.

In addition, Sino US trade relations are also adding uncertainty to semiconductor mergers and acquisitions, which may indirectly affect the willingness or choice of M & a planning. Xu Shaofu pointed out that China's semiconductor enterprises may face difficulties in the process of overseas mergers and acquisitions, which will have a certain impact on China's semiconductor industry.

Under the difficult progress of Chinese manufacturers' outward purchase, too many enterprises of the same type also make the industry too dispersed and difficult to realize the centralized utilization of talents and technology.

Gu Wenjun pointed out that China's capital market has been overvalued due to special reasons. It is relatively easy for enterprises to finance before 2020. In addition, with the support of the government, the semiconductor industry is in a "good time" for starting a business. Therefore, mergers and acquisitions in China's semiconductor industry are still relatively few, especially for mergers and acquisitions which have substantial impact on the industry.

However, the "new coronavirus" epidemic in early 2020 may bring some changes in the field of mergers and acquisitions. "2020's" new crown "incident may lead to financing difficulties for small and medium-sized companies. Gu Wenjun analyzed, "maybe there will be mergers and acquisitions of some small companies."

Xu Shaofu said that the recent outbreak of "new coronavirus" may slow down the growth rate of China's semiconductor industry, and many companies may face delays in increasing production or sales plans, which will be a sudden change in the slowdown of China's semiconductor manufacturers' Mergers and acquisitions.

However, he also pointed out that the development of semiconductors and related policies promoted by China, plus mergers and acquisitions is an effective way to rapidly upgrade technology and market share. China's semiconductor industry is expected to actively consider mergers and acquisitions in addition to strengthening its own technology development, with a view to improving the capability of chip production rapidly.