GlobalData names the semiconductor companies destined to become M&A targets

AMS, Ambarella, and AMD are among the leading semiconductor companies most likely to be acquired, according to the latest Thematic Scorecard for the semiconductor sector from GlobalData’s Thematic Team.

GlobalData has identified mergers and acquisitions (M&A) as one of the top themes driving the semiconductor sector.

Over the last five years, the value of M&A deals in the semiconductor sector reached $337bn. The key themes driving these deals included the Internet of Things (IoT), AI, data centers, autonomous vehicles and smartphones.

2019 has already seen Infineon’s bid to acquire Cypress with connected car and power management the key themes; NXP pick up Marvell Tech’s WiFi business; Nvidia snap up Mellanox for its data center and silicon photonics expertise; and Renesas complete its acquisition of IDT to herald a push into the self-driving cars market.

Cyrus Mewawalla, Head of Thematic Research said, “Any corporate executive that wants to grow their company needs to understand all the themes that impact their sector. Companies today are under tremendous pressure to invest in the disruptive tech themes that are shaping their industry, not merely to gain competitive advantage, but to survive.

“In semiconductors, M&A is driving company valuations higher. When an acquisition is announced the target company’s share price typically rises by 30%. Big Tech is continuing its acquisition spree, with the aim of strengthening their skillsets in next generation technologies like AI, cloud computing, augmented reality, blockchain, autonomous vehicles and the Internet of Things. And that means in semiconductors, there will be extensive M&A activity across the board: imaging chips, high end processors, memory chips, microcontrollers, programmable chips, and MEMS sensors.”

AMS, Ambarella, and AMD all gained the highest Thematic score (5 out of 5) for the M&A theme in GlobalData’s Thematic Scorecard for the semiconductor sector. A Thematic score of 5 out of 5 indicates that the company is likely to become a bid target in the next 3 to 5 years.

Many integrated chip designers have sold off their manufacturing plants, or “fabs”, to focus solely on design, leaving big foundries like TSMC, Global Foundries, Samsung, and others with a greater share of chip production. The Chinese want to enter the high-end chip market in a big way, despite being weak on both design and production of high-end processors. Consequently, the strategic value of owning a high-end chip designer with its own foundry will rise.

Austria’s AMS fits that description. As a maker of sensors, power management ICs, and ultra-low power systems, AMS also offers a play on the IoT theme, particularly connected cars, where it is already strong. Qorvo’s foundry services are also attractive. As a leader in radio frequency (RF) chips it too has a strong story in IoT. Potential buyers are NXP, STMicroelectronics, Infineon, Qualcomm, Broadcom and Intel.

Imaging chips are likely to be one of the highest growth markets in the chip industry for the next five years, with themes such as autonomous vehicles, drones, robotics, and AI expected to be strong drivers of the market for computer vision technologies. Ambarella is a prime M&A target, with Intel, Nvidia, Qualcomm, Samsung, STMicroelectronics and China’s Tsinghua Unigroup all among the likely acquirers.

In high-end processors, AMD is the key target. AI has become the battleground in the war for domination of next generation advanced technologies, and it requires powerful processors.

The big technology giants that want to dominate AI have already begun to design their own high-end processors. Apple designs the A series chips that power its iOS operating system, but Amazon, Google, Baidu, and Facebook have all followed suit. IBM, Intel, and Nvidia are the leaders in the high-end processors required for AI, VR, and real-time, computationally-intensive data processing,

Mewawalla added, “AMD is close behind these high-end leaders and so would be an enviable asset for three types of players: big internet ecosystems like Google; larger chip designers like Broadcom, which see AI as a dominant theme; or one of the big state-controlled Chinese chip houses such as Tsinghua Unigroup. However, there is little prospect of the US government allowing an acquisition by a Chinese company on national security grounds.”

Other semiconductor companies which also scored 5 and out of 5 for the M&A theme and are likely to become M&A targets include STMicroelectronics, Xilinx, Micron, NXP, Infineon, Microchip, and Teradyne.

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