Supplier Consolidation While Market Idles


There’s been a great deal of exploding news in the high technology space, some news literally reporting explosions.  The main theme though is major acquisitions by chip suppliers.  The most recent news is Qualcomm’s possible acquisition of NXP Semiconductors.

NXP recently acquired Freescale Semiconductor which added to its already solid automotive IC business, plus gave the company a greater presence in Asia.  Qualcomm has also reported M&A activity with the most notable being Atheros in 2011 and CSR plc in 2014 adding Bluetooth and WiFi networking.  In general, however, the company has focused on smaller acquisitions bolstering its leading position in the mobile phone market.  Should this playout, it would be a move by a dominant organization competing in a large market, looking to gain access to other markets outside of its cash cow, transforming the company.

While technology continues to play a leading role in all market segments, the large semiconductor suppliers such as Intel, Qualcomm, and Samsung continue to earn the bulk of their revenue from single application markets like PCs and mobile phones.  Both industries are characterized as oligopolies. Gaining access to other industries and expanding served markets reduces risk and due to economies of scale, accumulates R&D at a discount.

So while the customer base continues work towards diversifying the supply chain, the consolidation in the semiconductor industry is a counter shift to that end.  After several years of marginal growth (2015 and 2016), the semiconductor industry is in serious need for new opportunities to achieve expansion so the current M&A activities are expected to continue, at least until there is a new massive market appeal application introduced that will organically act as a propellant.

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