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Semiconductor M&A Crescendos with Battle of the Titans

Potential Global Consolidation Shifts Supply Chain Power

Broadcom Chases Qualcomm While Intel Ponders “Nuclear Option”

The merger and acquisition trend that began reshaping the semiconductor industry in 2008 is reaching a climax a decade later as titans of the industry engage in a dramatic battle playing out on a global stage.  Broadcom, one of the most aggressive players in M&A activity in recent years, initiated the latest and largest M&A battle yet with its bid to acquire Qualcomm on November 6, 2017.  In the ensuing months Broadcom’s bid has become a hostile takeover attempt with moves to change Qualcomm’s board and Qualcomm stating it would acquiesce if the bid were raised to a value of $160 billion.  Even at the initial bid, valued at around $130 billion, this deal would dwarf all other previous M&A deals in the Technology world. To date the largest technology M&A deal was Dell-EMC which was valued at $65.8 billion.  Qualcomm is currently trying to acquire NXP in a bid valued at $46.6 billion.

Broadcom’s move to acquire Qualcomm has now evolved into a contest involving four of the top ten semiconductor suppliers and government regulatory bodies in the U.S., Singapore, China and other countries.  In what would be seen as primarily a defensive move, Intel is now mulling a bid to acquire Broadcom.  This is motivated by Intel’s need to succeed in the developing and vitally important 5G market.  Intel’s efforts in the wireless world have not been successful previously.  Given the dominating role that wireless communications has established in the technology world and the anticipated role of 5G technology, Intel cannot afford to miss this opportunity.

Currently, Qualcomm and Huawei are taking lead roles in the semiconductor industry in shaping 5G. If Broadcom were to acquire Qualcomm it would become even more difficult for Intel to compete in this high-stakes battle for the 5G future.  A scenario where Broadcom would sell Qualcomm’s assets to Huawei has drawn the U.S. into the deal and resulted in the Committee on Foreign Investment in the United States (CFIUS) to mandate a delay in the election of directors to Qualcomm’s board.  The US is concerned about 5G technology control shifting to Huawei given its concerns over potential Chinese control of this critical technology.  In all of this, Intel is hoping Broadcom’s acquisition effort will fail.  However, if not, Intel is preparing for a “nuclear option” where it would acquire Broadcom.

Semiconductor Consolidation Creating Monopolies?

As the semiconductor industry as grown and matured, powerful technology and financial forces have driven a strong M&A trend in the industry that has played out primarily among companies in the top 25 ranks.  Companies have captured benefits in their market position through M&A.  However, the primary driver is the significant economic benefits that have boosted company profitability.  In 2008 the top five semiconductor suppliers controlled nearly 32% market share and the top ten over 44% share. By the end of 2017, the top ten controlled over 60% share.  If the four companies involved in the current M&A battle all combine the new company would control over 24% share of the market.  Within the processor and logic markets it would have an overwhelming dominant position, possible something close to a monopoly. Players in the electronics supply chain will see a jump in supply chain power toward this new entity if this “nuclear scenario” plays out.



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TAGS: Supply Chain
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