Monday, May 4, 2009

Let the consolodation begin

I've pontificated for the last 18 months that the semiconductor industry is poised for firestorm of consolidation, but there has been very little action due to the stalled capital markets and executive leadership teams focused on revenues, cost cutting, balance sheet clean-up and falling stock prices. Small M&A deals have been closing quietly, much to the satisfaction of a handful of boutique advisory firms. In the last six weeks though, several larger mergers and carve-out acquisitions have been announced:
  • QLogic acquires NetXen
  • NetLogic acquires "search engine" carve-out from IDT
  • IDT hijacks Tundra from suitor Gennum
  • Microsemi acquires "defense and security" carve-out from Endwave
  • Ikanos acquires "broadband access" carve-out from Conexant
  • Broadcom launches unfriendly acquisition of Emulex
  • Microsemi acquires "rad hard" carve-out from Spectrum Control
  • Microchip acquires R&E International
  • Rambus acquires packaging patents from Inapac
  • LSI acquires "RAID adapter" carve-out from AMCC
  • Trident Microsystems acquires "frame rate conversion and audio" carve-outs from Micronas
  • Western Digital acquires SiliconSystems
  • Microchip accumulates 9.2% of Supertex
The stage is now set with irrationally low market valuations, very poor (wafer, assembly & test) capacity utilization, a maturing industry where scale is attractive and revenues having declined significantly. Seems like very dry kindling waiting for a spark........

Will the semiconductor industry consolidate in an orderly and logical progression resulting in bigger and healthier competitors benefiting all parties? Or, will we follow the path of other 50 year-old industries and consolidate in a fury of ego and hubris which transfers shareholder equity into the ether?

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