Palo Alto, CA – March 14, 2016
In 2015, we witnessed a remarkable number of very large M&A transactions among semiconductor companies. While the semiconductor industry has aggressively reinvented itself through M&A over the years, this level of activity is different, and really transformative. Mergers and acquisitions typically occur in reaction to competitive or market conditions, and we believe that is also the case here. In this report, we take a look at some of the factors motivating the flurry of deals, and also look at what we can expect going forward.
In addition to the forces present in any maturing industry, there are some special elements that come into play in the semiconductor space. In particular, Moore’s Law, the defining algorithm for process improvement and evolving price/performance for over 30 years in the industry, is breaking down as the limits of the laws of physics become increasingly insurmountable. At the very same time, growth in the personal computer market has slowed dramatically, displaced by mobile computing devices, changing the dynamics and economics of the semiconductor components used in these devices. Moreover, venture capital funding has shifted almost entirely away from semiconductor technologies and into software and related technologies.
We see M&A activity continuing at a heightened level, with the potential for a few more large transactions as consolidation continues. Perhaps more important however, is the need to rationalize and digest the acquisitions that have already occurred. As acquirers adapt to changing market conditions and attempt to enhance their focus on segments where they already enjoy significant competitive advantage, they will inevitably identify non-core businesses that they will want to divest, and we believe this will contribute to transaction volume in the next 12-18 months.