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Severance benefits cause friction in Microchip/Atmel merger

Posted: 12 Apr 2016 ?? ?Print Version ?Bookmark and Share

Keywords:merger? microchip? atmel? OEM? severance benefits?

One veteran business executive who has worked with both Microchip and distributors supplied perspective on condition he was not named.

"As a business strategy Sanghi didn't want to get in price wars that are common in the industry with Atmel, [the former] Freescale and others. He wants to have 20,000 smaller customers who don't put price pressure on him," the executive said, expressing surprise that a large OEM such as Honeywell might cancel sales if it had existing designs and contracted chip prices.

"Sanghi is a clever guy, and that's why he's had an incredible run of growth and margins. Atmel and Freescale have wilder financial swings with design wins and losses at consumer companies. Sanghi made a strategic decision not to get in that kind of business, but now that he has bought Atmel he's kind of in it now," the executive said.

"Microchip plays hardball with distributors, who are always trying to get more margin out of suppliers. Microchip is famous for not giving in because they don't see the value distributors provide," he added.

Looking ahead, the employee who disclosed the documents described the early days of the merger.

"Microchip's first step in the integration process is to look at all existing products to see what products can be moved directly into the Microchip catalog, have the Microchip sales team trained on the products, then start selling the products. The next step is to evaluate the cost of finishing products under development, then determine a cost benefit analysis to complete it or not.

On one hand, I admire their efficiency. On the other hand, this will result in limited new product development and eliminating engineers & marketing that go with it," he said.

Atmel is one of many companies now on going through a merger or still on the block. About 20 deals were struck last year, fewer than in 2014, but they represented more than five times their value at well above $100 billion. The Avago/Broadcom combination which closed in February was the largest of them but has been quiet so far on layoffs.

Like Atmel, Fairchild has also suffered through a prolonged period of bids and counterbids from On Semiconductor and investors in China. Fairchild accepted On's latest bid but the deal has yet to close.

-Rick Merritt,
EE Times

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