Deep science and technology

Some analysts believe that the epidemic will slow down the growth of China's semiconductor industry to a certain extent, and many manufacturers' existing production and sales plans may face delays, thus delaying the mergers and acquisitions of Chinese manufacturers. However, the epidemic may also make it difficult for SMEs to finance in the future, which will promote mergers and acquisitions among a number of small and medium-sized semiconductor enterprises.

On February 6, the research report released by IC Insights, an integrated circuit industry analysis firm, showed that semiconductor M&A activity recovered in 2019, with a year-on-year growth of 22%, reaching $31.7 billion. 2019 also became the third largest year in terms of total M&A in the history of the industry.

The M&A boom in the semiconductor industry peaked in 2015 with a total amount of US $107.7 billion. However, in the following three years, the total amount of M&A declined continuously, showing a trend of slowing down. However, in 2019, when the global semiconductor market was slightly weak, there were more than 30 M&A transactions in the industry, including 7 M&A transactions worth more than US $1 billion.

According to the analysis, 5G, AI, automotive and other emerging fields have successively achieved commercial mass production, making them the most important driving force for industrial development. This has not only created high growth market demand, but also helped the semiconductor industry to gradually recover from mergers and acquisitions.

However, Sino US trade relations are adding uncertainty to M&A activities in this market, which may indirectly affect the planning willingness or choice of M&A cases. For Chinese semiconductor manufacturers, their overseas mergers and acquisitions may face some difficulties in the review process.

In addition, the recent epidemic caused by the new coronavirus has also brought some variables to the M&A activities of Chinese semiconductor manufacturers. Some analysts believe that this will slow down the growth of China's semiconductor industry to a certain extent, and many manufacturers' existing production and sales plans may face delays, thus delaying the mergers and acquisitions of Chinese manufacturers. However, the epidemic may also make it difficult for SMEs to finance in the future, which will promote mergers and acquisitions among a number of small and medium-sized semiconductor enterprises.

Semiconductor M&A activity will recover in 2019. Photographed by Song Wenhui

Acceleration of mergers and acquisitions in the global semiconductor industry

In the past decade, with the gradual rise of a series of emerging technologies, including machine learning, artificial intelligence, automatic driving, biometric identification, computer vision, virtual/augmented reality, high-speed wireless networks, and the Internet of Things, the semiconductor industry, as a foundation, has become increasingly mature, while the trend of integration has also gradually emerged.

Gu Wenjun, chief analyst of Xinmou Research, pointed out to the 21st Century Economic Report reporter in the interview that, on the whole, international mergers and acquisitions are still continuing. This is mainly because the industry has entered the era of "diversification", and there are fewer and fewer single and large "killer" products. Large semiconductor companies need to improve their performance through financial means or product portfolio.

From the perspective of the annual M&A scale, 2015 is a watershed. In 2015 and 2016, the total M&A value of the global semiconductor industry reached US $107.7 billion and US $100.7 billion respectively (later adjusted to US $59.8 billion). From 2010 to 2014, the average annual total amount of mergers and acquisitions in the global semiconductor market was only 12.6 billion dollars. At that time, many analysts said frankly that the semiconductor industry was undergoing a stage of intense integration.

Although this trend has slowed down in the following three years, the average annual total amount of mergers and acquisitions in the semiconductor field will still reach 50.6 billion US dollars from 2015 to 2019. After 2015, it has become a new normal for the semiconductor industry to maintain a total M&A scale of more than 25 billion dollars every year.

Compared with the past, the traditional growth mode of semiconductor industry relying on existing resources and business is showing signs of weakness in recent years. With the gradual maturity of the market, it has basically become the consensus of the industry that the research and development of the next generation of technology will be extremely expensive. It is difficult for a company to maintain a high degree of flexibility in a diversified market to respond to industrial changes. The merger between enterprises provides a more efficient solution.

In a report released in January, Accenture, a market consulting company, said frankly: "The traditional organic growth of the semiconductor industry has ended; As an alternative, leading semiconductor manufacturers have taken M&A as a new growth strategy. The result is a dramatic consolidation of the industry. According to the statistics of the agency, there are still 130 semiconductor enterprises listed in the United States 10 years ago with a market value of more than $100 million, while by the end of 2018, there are only 72.

"Super merger" may be difficult to reproduce

Xu Shaofu, an analyst of Jibang Consulting, pointed out to the reporter of the 21st Century Economic Report that the development of 5G communication technology is the most concerned topic in 2019. In addition to the realization of mass production of commodities, the advantages of 5G high transmission volume and low delay also expand the relevant applications of AI and the automotive field, such as AI cloud computing and automatic driving.

"5G, AI and automotive have become the main driving force for the development of the semiconductor industry, creating a high growth market demand, thus contributing to the gradual recovery of mergers and acquisitions in the semiconductor industry in 2019." In addition, Xu Shaofu further pointed out that mergers and acquisitions in 2019 were quite diversified, which reflected that the industry was accelerating its mastery of products and related technologies to cope with the expansion of market demand.

However, due to the need for regulatory approval, M&A data in 2019 may still change.

For example, in the statistical data, the total amount of mergers and acquisitions in the semiconductor industry in 2016 was originally US $100.7 billion, but the widely watched transaction of Qualcomm's US $39 billion acquisition of NXP regrettably "miscarried" two years later, which finally adjusted the 2016 data to US $59.8 billion, and the average annual total in the past five years changed from US $58.8 billion to US $50.6 billion.

In the transaction in 2019, Infineon, a German company, is still waiting for the approval of the regulatory authorities for its acquisition of Cypress, an American enterprise, worth US $9.4 billion, which is also the largest acquisition in 2019 according to IC Insights.

Gu Wenjun pointed out that one of the characteristics of semiconductor M&A in 2019 is the active M&A of medium-sized companies or second tier companies, as well as the product portfolio. However, he also said that in the future, "super mergers and acquisitions" will be less and less. "This is mainly because the importance of semiconductors is increasingly recognized, and many countries have set very high audit standards for mergers and acquisitions." He said, "Policy restrictions will lead to fewer large mergers and acquisitions."

Accenture data shows that from 2013 to 2015, there were only 3 semiconductor M&A transactions blocked or terminated due to "government intervention" or "regulatory restrictions" and other factors; From 2016 to 2018, the number rose to 14. The agency also pointed out in the report that the larger the transactions are, the more likely they are to be audited for a longer period of time.

Taking Infineon's US $9.4 billion acquisition of Cypress as an example, this largest semiconductor acquisition in 2019 was originally expected to be completed at the end of 2018 or early 2019, but it is still waiting for regulatory approval.

However, Gu Wenjun still stressed that although the regulation became stricter, the role of industrial laws would lead to the continuation of M&A activities. Xu Shaofu also said in the interview that from the perspective of the development trend of the semiconductor industry in the medium and long term, the growth of emerging applications and demand is "quite promising."

Epidemic situation brings uncertainty to China's semiconductor market

Accenture reports that changes in the semiconductor industry environment are also bringing changes in corporate strategies. Some enterprises intend to further expand the existing market share and customer groups; Some semiconductor companies achieve growth by expanding upstream and downstream of the industrial chain; More semiconductor companies are entering new product and service markets, although this also faces corresponding risks.

However, Chinese manufacturers have not "integrated" into the M&A trend of the global semiconductor industry. At the same time that international manufacturers have concentrated their resources, the number of small and medium-sized enterprises in China's semiconductor industry has also grown rapidly. It has been pointed out in previous analysis that the merger between giants may enhance their bargaining power with Chinese manufacturers, and may further affect the survival space of upstream material and equipment manufacturers.

In addition, Sino US trade relations are also adding uncertainty to semiconductor M&A, which may indirectly affect the willingness or choice of M&A planning. Xu Shaofu pointed out that Chinese semiconductor enterprises may face difficulties in the review process of overseas mergers and acquisitions, which will have a certain impact on China's semiconductor industry.

In the case that Chinese manufacturers have made little progress in purchasing from outside, the existence of too many enterprises of the same type has also made the industry too scattered, which makes it difficult to realize the centralized utilization of talents and technology.

Gu Wenjun pointed out that China's capital market is overvalued for special reasons, and it is relatively easy for enterprises to finance before 2020; In addition, with the support of the government, the semiconductor industry is in a "good time" for entrepreneurship. Therefore, there are still relatively few M&As in China's semiconductor industry, especially those that have a substantial impact on the industry.

However, the "new coronavirus" epidemic in early 2020 may bring some changes in the M&A field. "The 'Xinguan' event in 2020 may make it difficult for small and medium-sized companies to finance." Gu Wenjun analyzed that "there may be mergers and acquisitions of some small companies."

Xu Shaofu said that the recent epidemic caused by the "new coronavirus" may slow down the growth of China's semiconductor industry, and many companies may face delays in their existing production or sales plans, which will be a sudden cause of slowing down mergers and acquisitions of Chinese semiconductor manufacturers.

However, he also pointed out that, driven by China's key development of semiconductors and related policies, plus M&A is an effective way to quickly improve technology and market share, in addition to strengthening its own technology development, China's semiconductor industry is expected to actively consider M&A, with a view to quickly improving the ability of chip production.

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