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Mergers in tech industry sees no sign of stopping

Posted: 28 Oct 2015 ?? ?Print Version ?Bookmark and Share

Keywords:semiconductor industry? consolidation? M&A? merger?

More mergers and acquisitions are still forthcoming in the consolidating semiconductor industry, which will affect employment and chip pricing.

Experts see more mergers in sectors ranging from memory and storage to networking, processors and analogue. Just who will be involved is as hard to predict as the numbers of layoffs and impact on prices once the year's big deals start to close.

What's clear is the rationale.

"The cost of developing new chips is going up, so you need more revenues [per product]the consolidation is good for that because it gives you more pricing power, but it's bad for [OEM] customers who have less choices in who they deal with and you will have a lot of people on the street," said Handel Jones, chief executive of International Business Strategies.

Mark Edelstone, managing director of Morgan Stanley's investment banking division in Silicon Valley, predicted the consolidation a year ago and participated in some of the deals.

"I expected things would be dramatic because the industry has to transform itself meaningfully," said Edelstone, who has tracked 18 transactions over $100 million totalling $110 billion in value so far this year. "That's more than the sum total of deals in dollars in the prior ten yearsthat's amazing to think about," he said.

Acquisitions

Last year saw more chip M&A deals but the value of deals this year so far exceeds the last several years combined, said Morgan Stanley.

The changes will be healthy for the industry, Edelstone believes, suggesting layoffs will be minimal.

"The number of people dislocated will be relatively small on a percentage basis ... [but] we need to see a shift from one part of tech sector to another [because] in a maturing industry, you at some point have less people," Edelstone said, noting "the tech world is still vibrant" overall with opportunities in systems, new applications and software.

"Every industry goes through this [and] consolidation is healthy [because] companies will be strongerthat's good for shareholders and everyone wants to work for strong companies," Edelstone said.


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