Microchip joins the consolidation party of chipmakers

We had earlier reported that consolidation in the semiconductor industry appears to be the order of the day. Thanks to the increasing demands for new products, spiraling costs for setting up fabs, and increasing R&D costs, chipmakers are looking for M&As, which would help them diversify into new areas, enter new geographies and faster rollout of products.

The latest to join the bandwagon was Microchip, which announced last week it’s plans to acquire its counterpart Microsemi for $8.35 billion. Microchip has agreed to pay $68.75 per share in cash to buy Microsemi, a transaction that would bring in saving of $300 million in the third year post the closing of the deal. The transaction will be completed in the second quarter of this year.

Microchip currently mulls expansion of its footprint in the aerospace and defense verticals post the deal. These two verticals currently contribute a paltry 2% to the chipmaker. The deal would also beef up its presence in the data center and communications domains, which is expected to witness strong growth, especially in the areas of autonomous driving, IoT and 5G networks in US.

In January 2017, KPMG in its Global Semiconductor Outlook stated that, “M&A continues to offer companies the fastest route to enter new markets and acquire needed technology.”

It’s worth noting that Broadcom wants to buy Qualcomm for $117 billion in a hostile bid, which is still ongoing. Qualcomm on its own is trying to gobble up NXP Semiconductors for $44 billion.