Semiconductors as a whole are in a downward cycle, but the enthusiasm of large enterprises for acquisition has not cooled. Just one month after 2023, semiconductor mergers and acquisitions have been reported one after another. On January 19, GaN power chip supplier Navitas announced that it will acquire the remaining minority stake in its control chip joint venture from Xidi Microelectronics. On January 20, TCL Central announced that its holding subsidiary intends to acquire Xinxin Semiconductor by way of capital increase and share expansion to strengthen the competitive advantage in the field of semiconductor silicon wafer manufacturing. There is also news that Microsoft plans to acquire DPU startup Fungible.
The World Semiconductor Trade Statistics Organization (WSTS) released a forecast that the semiconductor market size will decrease by 4.1% year-on-year to $556.5 billion in 2023. In the short term, the semiconductor industry will remain under pressure. Acquisitions can enrich the "ammunition depot" of enterprises in a relatively short period of time, but they also put forward higher requirements for the organizational capabilities of enterprises. Especially in the situation that many semiconductor companies have announced the reduction or postponement of capital expenditure in 2023, the choice of targets must not only take into account the short-term and long-term growth direction of the enterprise, but also involve the research and analysis of the short-term and long-term needs of the market in order to find the combination of the two sides. The next step is how to transform the combination point into a power point to achieve higher revenue. If a market-leading product can be developed or a new blue ocean market can be discovered in the process of strong alliance, it will have a significant boost to both the acquirer and the industry itself.
Semiconductors are a winner-take-all industry. Generally speaking, the larger the scale of the enterprise, the more advantages it has in terms of capacity acquisition and price negotiation, and the stronger the ability to resist risks. At the same time, the semiconductor industry is at the inflection point of technology and growth momentum, which puts forward new requirements for the breadth and vertical integration ability of enterprises' product lines. Overall, the improvement of technology width, vertical integration ability, supply capacity and profitability has become the focus of semiconductor mergers and acquisitions during this period.
Focus 1: Increase technology breadth and profitability
Typical cases: Myling Technology acquires Silicon Motion, Broadcom acquires VMware
Cross-border acquisitions are often based on return on investment considerations. In 2022, the semiconductor industry also saw a number of acquisitions with large business spans. In addition to increasing the profitability of the acquiring company, such acquisitions also increase the revenue scale and technological breadth of the acquired enterprise.
A typical example is the acquisition of Silicon Motion. In May 2022, U.S. RF and analog/mixed-signal chip supplier Myling Technology announced that it will acquire NAND Flash control chip supplier Silicon Motion through a cash and stock deal, which will bring the combined company value to US$8 billion.
In terms of revenue, the annual combined revenue of the two companies is expected to exceed $2 billion. Gou Jiazhang, general manager of Silicon Motion, said in an interview with the media that the merger of the two companies is mainly based on financial considerations. In addition, for the current global IC design industry, the size and volume of the company is becoming more and more important, after the merger of the two companies, the revenue scale will exceed 2 billion US dollars, becoming the world's top ten IC design companies.
From a business perspective, the combination of the two companies will further enhance the breadth of technology, and the overall potential market opportunity will reach $15 billion. The two parties said that the combined company will have a more diversified technology platform, a stronger position in the end markets for broadband, connectivity, infrastructure and storage, and accelerate the growth of enterprise, consumer and many other related markets.
Gou Jiazhang pointed out that the accumulation of Wi-Fi, security accelerator and other technologies in Myling Technology can increase the competitiveness of Silicon Motion in enterprise-level products. Majeed Ahmad, editor-in-chief of EDN, said that the merger of Myling Technology, which supplies network and infrastructure semiconductors, and Silicon Motion, which supplies enterprise storage master control chips, will promote the diversified development of terminals for data center, smart home and industrial applications, and improve the integration of the technology stack of both parties in the consumer and enterprise fields.
Broadcom's acquisition of VMware follows a similar logic. In May 2022, Broadcom announced that it would acquire cloud service provider VMware for $61 billion in cash and stock, and Broadcom's software group will be renamed VMware to continue operations.
In the history of Broadcom's development, "acquisition" is an important vein. Today's Broadcom itself was renamed after Anhua Gao's acquisition of Broadcom in 2015, and Broadcom's corporate positioning has been continuously adjusted in one acquisition after another, from semiconductor device suppliers to infrastructure service providers.
In 2018, Broadcom spent $18.9 billion to acquire CA for IT management software and solutions provider, positioning itself as a semiconductor device supplier in the fields of connectivity, wireless, enterprise storage and industrial terminals. When it acquired Symantec's enterprise security business in 2019, Broadcom expanded its positioning as a "semiconductor and basic software solutions provider." The acquisition of VMware will allow Broadcom's tentacles to further penetrate into enterprise software services.
VMware CEO Raghu Raghuram said in an interview with the media that the main reason for Broadcom to acquire VMware is to become a leader in infrastructure software and have a rich software portfolio in infrastructure and management. Broadcom renamed its software division as VMware and consolidated some of its software assets into VMware, aiming to build VMware into a portfolio that can serve all customers, not just the head. VMware's customer base is different from that of CA or Symantec, and Broadcom can pursue different growth strategies once the acquisition is complete.
Under the uncertain situation of the global semiconductor market, enterprise software services still have some incremental space, which is conducive to improving the business predictability of Broadcom. According to IDC's Semi-annual Virtual Client Computing Software Market Tracking Report released in June 2022, the size of the virtual client computing software market reached US$320 million in 2021, a year-on-year increase of 25.2%; The market will continue to grow at a compound annual growth rate of 18.9% over the next five years and reach $760 million in 2026. In the global market, Citrix, Microsoft and VMware account for more than 3/4 of the share.
Focus 2: Enhance manufacturing capacity and supply resilience
Typical cases: Intel acquires Tower Semiconductor, JS foundry acquires ON Semiconductor factory
While the semiconductor market as a whole cooled in 2022, acquisitions for fabs continued.
In February 2022, Intel announced the acquisition of Tower Semiconductor for $5.4 billion to enhance manufacturing capabilities, expand its global footprint, and enrich its technology portfolio.
Proportion of mature and advanced processes in the foundry industry from 2021 to 2024
Source: TrendForce Consulting
In March 2021, Intel established the "Intel Foundry Service Division (IFS)" to enter the chip foundry. Since then, Intel has unveiled a process roadmap from Intel 7 to Intel 20A—that is, from the 10nm enhanced version to the Amy era. While Intel has shown a strong sense of initiative in advanced processes, mature processes are still mainstream from a global perspective. According to TrendForce consulting data, mature processes still accounted for 76% of the market share in wafer foundries in 2021. In 2022, the annual capacity of global foundries will increase by about 14%, of which about 65% of the new capacity of 12-inch will be mature processes (28nm and above). At present, the world's top ten foundries have developed mature processes and characteristic processes. Intel wants to be among the main foundries, from the perspective of business integrity and market demand, it cannot ignore the layout of mature processes.
As one of the world's top ten wafer foundries, Tower Semiconductor has a mature process layout of more than 30 years, covering RF, analog chips, power management chips, CIS, MEMS and other chip types, which can quickly supplement Intel's mature process technology and expand customer resources.
The acquisition of Tower Semiconductor is also beneficial to the diversification of Intel's supply channels. TrendForce Consulting said that Tower Semiconductor's factories are distributed in Asia, EMEA (Europe, the Middle East, Africa) and the Americas, making Intel's capacity scheduling more flexible and further avoiding the chain break crisis accompanied by geopolitical risks.
Intel isn't the only company to acquire mature foundries in 2022. In December 2022, ON Semiconductor announced that it had sold its Niigata plant in Japan to JS Foundry Co., Ltd. It is reported that JS Foundry Co., Ltd. was established by Mokerui Investment Co., Ltd. and Sangyo Sosei Consulting Co., Ltd. (SSA). Mercuria is one of the leaders in the alternative investment space in Japan, with investments in different sectors such as manufacturing and services. SSA is the first financial advisor in Japan to specialize in the TMT (Technology, Media and Communications) industry. Through the cooperation, the two parties established a Japanese-funded foundry enterprise to provide semiconductors to Japanese customers.
This acquisition means that Japan has the first independent specialty craft foundry. According to the information, JS foundry plans to expand the production capacity of power semiconductors and analog semiconductors by 2.5 times to meet the needs of electric vehicles and new energy fields. As of 2019, there are about 84 chip manufacturing factories in Japan, but the aging phenomenon of equipment is serious. Under the leadership of financial institutions, Japan will invest funds in semiconductor factories, introduce the latest production equipment such as power semiconductors, and transform factories into foundry production bases.
Focus on 3: Enrich the product portfolio and improve integration capabilities
Typical case: AMD acquires Xilinx, Pensando
In recent years, the increasing abundance of digital media formats and the development of emerging technologies such as artificial intelligence have made data types and data center workloads increasingly segmented. Under this trend, data center processor manufacturers such as Intel, NVIDIA, and AMD are forming heterogeneous computing resource pools to cope with diverse workloads. Acquisitions, on the other hand, became an option to quickly replenish processor types.
In February 2022, AMD completed the acquisition of Xilinx, the world's largest FPGA manufacturer. FPGAs are suitable for parallel computing, can be accelerated according to different computing tasks and workloads, are often deployed as accelerator cards in data centers, and are also common computing modules for heterogeneous computing platforms of processor manufacturers.
"Small but beautiful" FPGA manufacturers have always been high-quality targets in the eyes of large manufacturers. In 2015, Altera, the world's second-largest FPGA manufacturer, was acquired by Intel. Intel CEO Brian Krzanich said that combining Altera's FGPA with other processors was expected to achieve a 2x performance improvement. For large cloud service providers, 2x performance improvement can bring competitive advantages and cost advantages, truly promoting the rapid growth of cloud services. In 2018, Intel proposed the concept of "XPU", that is, the use of CPU, GPU, FPGA and other computing architectures to fully meet complex computing needs, FPGA has become an important part of Intel's heterogeneous computing platform.
AMD's acquisition of Xilinx is similar. Xilinx's FPGAs and adaptive compute acceleration platforms can be integrated as IP into AMD products to optimize data flow architectures. In its next-generation hardware and software roadmap announced in September 2022, AMD introduced the XDNA architecture, which incorporates Xilinx's FPGA architecture and AI engine. AMD plans to integrate XDNA IP into multiple products, starting with the AMD Ryzen™ processor launched in 2023. In the AMD RDNA 3 architecture graphics released in November 2022, the software suite AMD RDNA 3 Media Engine also integrates Xilinx content adaptive machine learning technology to improve text quality at lower resolutions and lower bitrates.
Also in 2022, AMD announced the acquisition of Pensando for approximately $1.9 billion. Pensando is a data center service provider that provides DPUs and distributed service platforms. DPUs are dedicated data-oriented processors that can more efficiently handle networking, storage, security, quality of service management and other services at the infrastructure layer, thereby freeing up CPU computing resources.
With Pensando's DPU products, coupled with Xilinx, which has been acquired, AMD can provide a heterogeneous computing matrix of CPU+GPU+FPGA+DPU for data centers. Previously, Intel has formed a heterogeneous computing resource pool of CPU + GPU + FPGA + IPU. Intel's IPUs (Infrastructure Processors) are used to accelerate network infrastructure and free up CPU cores, similar to the core concept of DPUs. NVIDIA has also launched a three-core strategy of "GPU + CPU + DPU" through self-developed CPUs. Based on self-research + acquisition, leading manufacturers have built their own heterogeneous computing landscapes, and the competition for vertical integration capabilities and load service capabilities has just begun.
Author丨Zhang Xinyi
Editor丨Chen Bingxin
American editor丨Maria
Executive producer丨Lian Xiaodong