BY SEMI STAFF
At SEMI’s Industry Strategy Syposium this year, a merger’s and acquisitions panel, moderated by Robert Maire of Semiconductor Advisors, took a look at how the industry might look in the future. The panel consisted of:
• Patrick Ho, senior research analyst, Semiconductor Capital Equipment at Stifel Nicolaus
• John Ippolito, VP Corporate Development at MKS Instruments
• Israel Niv,former CEO of DCGS ystems
• Tom St.Dennis, chairman of the Board of FormFactor.
Will the huge deals of 2015 and 2016 continue?
Setting up the panel, Maire observed that 2015 and 2016 were huge in transaction size (over $100 billion announced in 2015), but while the values of the deals have jumped, the number of deals has remained fairly consistent over the past several years. Also, China has more significantly moved into the M&A market in 2015, in the range $4 to $5 billion.
It appears that M&A will continue, but not at the same pace as 2015 and 2016 due to increasing political, regulatory, and industry pushback. In the equipment space, while big deals such as Advantest and Verigy were possible in 2011, the current climate has seen big deals falter including Applied Materials and Tokyo Electron; Lam Research and KLA-Tencor; and Aixtron and Fujian Grand Chip.
However, Maire observed that the motivations for M&A continue; for instance, Intel needs to offset a declining PC market and ramp IoT, VR, and Cloud activity and will likely consider M&A as part of its approach. Similarly, opportunities for equipment companies to increase scale and size exist for process control companies and in the back-end segment where further consolidation appears necessary.
China becomes a player
China’s ambitions in M&A may have been complicated by recent events, but with a $150 billion investment fund there are likely more opportunities ahead. China has stated the intent to move from producing just 10 percent of its IC consumption to 70 percent in ten years and catching up technologically by 2030. While some see concerns given China’s investment and later pricing collapses in FPD, PV, and LED, others see China’s efforts to increase its indig- enous production of ICs as similar to what has happened as the industry spread from U.S. and Europe to Japan, Taiwan, and Korea.
The panel responded to questions from Maire, questions submitted from the audience, and live audience questions. Ho noted that big deals in semiconductor equipment appear, for the time being, to be difficult or over. However, there is still low-hanging fruit and smaller deals. There is a need to focus on scale and size because customers (IC manufac- turers) are bigger and fewer. For example, Form Factor’s combination with Cascade brought size and scale and enabled Form Factor to be more competitive.
The future for semiconductor equipment consolidation
Several questions revolved around where M&A would happen in the semiconductor equipment space. There was general consensus that M&A of any of the “big five” (not named, but likely ASML, Applied Materials, Lam Research, Tokyo Electron, and KLA-Tencor) were off the table in the short term due to both regulatory pressure and industry pushback given fears of overly strong supplier power. Niv thought there were opportunities for consolidation in the metrology and process control space. Ippolito thought there might be further consoli- dation opportunities in motion control. St. Dennis thought there were opportunities throughout the whole supply chain. He pointed out that the benefits of acquiring a good company were significant, including great talent (difficult and time consuming to develop organically), synergies in not just SG&A, but in technology and field organizations.
The role of private equity was raised. Ippolito noted that the private market and private equity have roles to play in consoli- dation opportunities, noting the success of Atlas Copco with Edwards Vacuum and Oerlikon Leybold as an example.
Several questions focused on China. Niv pointed out the industry needs to think about China similar to how they thought about Japan when Japan was emerging as an IC manufacturing power. Partnering with Japanese companies was an effective strategy for many and brought long-term success in that market. Ippolito thought that very large China deals might be off the table for a while, but smaller deals would likely go through. He noted that $150 billion (the China investment fund) is a lot of money and that tends to find a way forward.