Broadcom whale swallowing Qualcomm: Accelerate the integration of the semiconductor industry is a big move

Shortly after Qualcomm officially rejected Broadcom's $ 130 billion takeover offer, Hudson, CEO of Broadcom, responded on the 13th in the United States local time, and Broadcom's acquisition proposal received positive feedback from key customers and Qualcomm shareholders. Many shareholders have expressed Hope that Qualcomm will be able to offer on the acquisition of dialogue with Broadcom willingness, Broadcom still strongly hope that cooperation with the way the board of directors and senior management to engage in contact.

Broadcom had previously said that if Qualcomm merger, and Qualcomm acquired NXP transactions can be successfully completed, the new company is expected in 2017 revenues will reach 51 billion US dollars, becoming second only to Intel and Samsung's third largest semiconductor maker. Gartner Data show that in 2016, Broadcom, Qualcomm and NXP market share of 3.8%, 4.5% and 2.7%.

Regardless of the outcome of the largest M & A war in the history of the technology industry, the trend behind the international semiconductor industry is emerging.Strategic Analytics market research firm pointed out that in the past two years the semiconductor industry is going through a period of intense integration , Such as Qualcomm, itself is in the process of acquiring NXP.

Semiconductor industry consolidation has become an international trend

Earlier, in September 2016, KPMG conducted a survey of 153 top executives in the world's leading semiconductor companies and released "The Road to 2017 Semiconductor Development." The report states that M & A and diversification The market will be the top strategic focus for managers in the semiconductor industry over the next three years, and the M & A phenomenon in the industry will continue and the focus will be more on acquiring technology through acquisitions and generating revenue growth.

KPMG believes that on the one hand, semiconductor companies now hold huge amounts of cash, but on the other hand interest rates are still at a relatively low level. As a result, M & A continues to be the quickest way for semiconductor industry companies to penetrate new markets and acquire needed technologies. "The strongest argument among executives is that the industry has entered a post-expansion phase, industry representatives say the industry is at an inflection point, or has already entered a period of contraction," KPMG said in the report. "Many companies increasingly see mergers and acquisitions as real The only way to grow revenue. '

Len Hicklin, senior analyst and principal analyst for the semiconductor industry at IHS Markit, told 21st Century Business Herald that semiconductor manufacturers can achieve this long-term market share by combining R & The acquisition of Qualcomm is another example of how semiconductor companies are aware of this. "As the market matures, the development of the next generation of technology will be extremely expensive, and it has become almost a consensus that for a company, It is very difficult to maintain a high degree of flexibility in the market to cope with industrial change, "Jelinek said." Consolidation among enterprises will allow market rules to be established more quickly, resulting in more efficient solutions. "

According to IHS Markit, 21st Century Business Herald, the number of mergers and acquisitions in the semiconductor industry reached 22 in 2010 and then gradually declined to 9 in 2013 since then, but M & A activity Frequent, the next three years reached 19, 25 and 21.

In this regard, Jelinek said, 'The overall M & A activity is likely to decrease due to the valuation of the company's shares, but the company is still likely to sell some non-core or no longer in line with the long-term strategic direction of the business unit . "According to the data, the semiconductor industry companies sold 12 business units in 2016, which is the same as the sum of the three years from 2013 to 2015. KPMG analyzed that at the beginning of consolidation of this round of industry, the current mergers and acquisitions Has fewer and fewer actual deals, the actual number of transactions will decline, but the total volume of M & A transactions is still likely to increase year by year.

For antitrust needs, some semiconductor manufacturers in the merger process will also choose to spin-off part of the business.Strategy Analytics wireless component analysis director Christopher Taylor to 21st Century Business Herald reporter introduced the case of dual-pass merger, if the merger , The new company's share in the Wi-Fi chip market will exceed 50% and trigger antitrust concerns, either of which is likely to be forced to sell the assets and patents of the production line.In 2015, NXP acquired Freescale's Process, but also because of the merger will reach 75% of the market share was forced to sell its RF Power Division, the buyer is a Chinese-funded enterprises.

In addition, the integration trend of the semiconductor industry is also likely to further develop.Budong CEO Hock Tan had said that the future of the semiconductor industry, the trend of M & A mergers and acquisitions from the semiconductor companies will be horizontal mergers and acquisitions to the vertical integration of upstream and downstream. Rio Tinto Research Institute analyst Guo Gaochang also to this 21st Century Economic Report correspondent explained: Some of the top companies, some of its industry-specific links may appear to other companies can not support the technology to TSMC For example, because of its foundry walk in the forefront of the industry, but many of the IC packaging and testing companies can not quickly respond to their product systems, TSMC also have their own packaging and testing needs.

The Poles of Impact: Challenges and Opportunities

According to an interview with the 21st Century Business Herald pointed out that the merger between the giants will inevitably lead to increased bargaining power of Chinese manufacturers, local OEM, IC packaging and testing firms to reduce the bargaining power, is likely to further affect the survival of upstream materials, equipment manufacturers space.

In the case of ShuangTong, Gu Wenjun, chief analyst of Xinmu Research, told reporters in the 21st Century Business Herald that the acquisition of Broadcom is mostly financial in nature and needs to be alleviated by the combined price hikes. "According to Broadcom's operational history, After the acquisition, will be in the core, there are monopoly advantages of product prices. 'Gu Wenjun said.

21st Century Business Herald Earlier reports also mentioned that as early as Avago and Broadcom merger, the new Broadcom, including Huawei, ZTE, including customers conducted a round of product prices, the minimum product increases up to 10 %, The living space of domestic agents have also been severely squeezed.

In addition, while the international semiconductor industry has shown the trend of concentrated integration of resources, China witnessed a large-scale increase in the number of enterprises in 2016. Guo Ga Hang pointed out that at present, the international giants are still merging with M & A, and Chinese companies hardly make any progress in their outward purchases The case of too many enterprises of the same type makes the inside of the industry too dispersed and it is difficult to realize the concentrated use of talents and technology.

However, the consolidation trend in the international semiconductor industry is not always a 'disaster' for Chinese manufacturers.

Jelinek argues that while M & As do not dominate the semiconductor industry in China compared to the global industry consolidation trend, the long-term implications for China of Broadcom's acquisition of Qualcomm and the underlying industry consolidation trends are not realistic at the moment : 'China is working to develop a unique set of Chinese standards with the goal of developing indigenous solutions that do not rely on international industry standards.'

Guo Air Air believes that in the semiconductor industry, a giants in several product areas to stabilize the faucet is possible, but in some core products or branch product technology, even the giants will need other companies to cooperate with the technology giant Apple, for example, the core product iPhone's OLED screen still need to Samsung or China's BOE to provide, 'We can not stop the giant, but the market is completely under the control of Big Bang is not likely.'

Gu Wenjun believes that this trend actually shows the weak growth of international giants, which for Chinese companies will be an opportunity.On the one hand, the industry has reached a bottleneck in recent years, few breakthrough products through financial operations' However, on the other hand, there are some new and very fragmented applications such as Internet of Things, AI, AR, and VR. Although the semiconductor industry is in a phase of reform, the vitality of the whole industry is still high Very strong '.

Taylor pointed out that the merger between the giants on the Chinese companies have another potentially beneficial impact: the merger will strengthen its cooperation with China's semiconductor industry partnership. 'Qualcomm has long been a large number of products from the foundry in China is responsible for, but also reached A number of cooperation programs centered on Chinese manufacturers such as Joint Venture with China Unicom, Hua Xin Tong Joint Venture, and cooperation with Chinese network operators and venture capital funds in the 5G field Since the agreement was reached with China Development and Reform Commission Since then, Qualcomm's business in China is progressing well, this situation is also likely to continue. "Taylor said.