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China's M&A spree shakes up chip industry

Posted: 26 Nov 2015 ?? ?Print Version ?Bookmark and Share

Keywords:M&As? mergers? acquisition? chipmakers? semiconductor?

China's ambitious move to acquire foreign chipmakers led rivals to think of it as a sign that mergers and acquisitions (M&As) is bound to get more competitive while target companies will likely become more expensive, Reuters reported.

More than $80 billion worth of M&As were announced this year. The nascent Internet of Things has created a strong demand for all kinds of semiconductors, which pushed chipmakers to buy their peers to increase capacity and capabilities.

However, China's acquisition binge could jack up the value of merger targets, making it difficult for rivals to compete. Over the past two years, Tsinghua Unigroup spent $10 billion on M&As as part of China's plan to develop a national semiconductor industry. The Chinese conglomerate plans to spend $50 billion more over the next five years.

Most Chinese deals are driven by private companies, including Tsinghua, which allocated about $13 million for a memory chip factory. A group of Chinese investors decided to buy U.S. smartphone camera chipmaker Omnivision Technologies in April for approximately $1.9 million in cash, Reuters reported.

According to Handel Jones, chief executive of chips consultancy International Business Strategies, these M&As in the chip sector is far from over and that some will be made known to the public in the coming weeks. He expects the mergers to come from companies focusing on memory and power management chips.

Confusing and stimulating

Pundits see China's buying spree as both confusing and stimulating. For example, Tsinghua's 15-per cent buyout of Western Digital, makers of hard disc drives and memory chips, appears to have limited growth prospects.

"Some of the activity I don't quite understand," Mark Liu, president and co-chief executive officer at Taiwan Semiconductor Manufacturing Co., told Reuters in an interview.

On the other hand, analysts see this Chinese activity as a move to achieve the country's goal of becoming self-sufficient in key industries, such as semiconductor and electronics. China plans to do this by taking over all aspects of the business and developing products to compete against well-known chipmakers.

"As people sort of rationalise these acquired businesses and cut back on development, where is your growth coming from in three to five years?" Reuters quoted analyst Gus Richard at Northland Securities as saying. "It's hard to start making predictions because people are doing things outside of what I would think would be normal behaviour."

- Stephen Padilla

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