A number of high-profile acquisitions by top semiconductor suppliers in the last few months have raised both interest and concern by customers and suppliers alike regarding the evident accelerating pace of consolidation in the semiconductor industry.
The semiconductor industry has seen a steady increase in consolidation among the top 10 suppliers since the 2008 economic downturn. Based on announced M&A plans, IHS Technology projects that the top 10 this year will capture 55.3% of the industry’s $366.7 billion in estimated annual revenue, up from 44.3% in 2008. Projections also show that the top 25 companies will capture 74% of total semiconductor revenue this year, while nearly 270 companies will be chasing the remaining 26%.
What is the profile of consolidation in the major market segments of the semiconductor industry? Are all market sectors experiencing consolidation? What is motivating the increased pace of consolidation? How is consolidation influencing profitability in the industry? How as the distribution of financial deals changed between company acquisitions, business sales, joint ventures & spinoffs and business exits? Are the deals growing in volume and size in recent years?
Over the past 14 years, beginning in 2001, IHS Technology (NYSE: IHS) has created a rich and detailed semiconductor market share database that is unmatched in its scope and depth. In addition to providing highly detailed market share data covering over 300 companies every year, this database has also captured all major mergers & acquisitions, business sales and transfers, spinouts and joint ventures, private ownership changes, and bankruptcies. All of this is delivered in a tool that enables powerful analysis. Over this time, IHS has captured information on 312 deals. The database has also captured gross and operating profit data for public companies. Drawing on the wealth of data in this database IHS Technology has been able to conduct analysis that quantifies, illustrates and provides insight into important trends related to consolidation in the semiconductor industry.
Not surprisingly, the memory and microcomponent segments have reached the highest level of consolidation with the top five representing 89% and 85% of total revenues respectively in these markets. However, the Logic IC market has seen dramatic consolidation since 2008 when the top five suppliers earned 29.6% of all Logic IC revenue. IHS projects that the top five Logic IC suppliers will capture 52.5% of revenues, an increase of nearly 23% in seven years. The analog IC, discrete, optical and sensor markets have seen either minimal consolidation or deconsolidation. However, current discussions and trends point toward the strong possibility that the analog IC segment could be the next area to see a growth in consolidation activity.
Over the last 14 years IHS Technology has identified and tracked over 430 companies who have reported significant annual revenues (typically over $30 million). In 2008 the number of companies identified in IHS’ tracking reached a peak of 339 companies. By 2014 the number of companies with significant annual revenues dropped to 291. It is expected that the decline in companies with significant market participation will continue to decline in 2015.
Based on a subjective categorization by size of the 312 deals tracked by IHS as well as the type of deal it is seen that the size of “Large” and “Extra Large” deals has grown significantly as a share of the financial activity in 2014 and 2015. In addition, merger and acquisitions of companies has been a much more significant share of activity in the last 2 years compared to other actions such as the sale of individual business units, spinoffs, joint ventures, etc.
A number of factors are influencing the shape of M&A activity in recent years. Companies are restructuring their product lines and market focus, creating a stronger presence in target market segments and pursuing synergies in creating solutions oriented offerings for the market. However, another notable benefit in growing the size of a company is found in the major growth in average profit margins based on the size of a company. A comparison of profit margins for 100 public companies representing 63% of semiconductor revenues where more than 70% of each company’s revenue was earned from semiconductor product sales shows that major semiconductor companies have identified benefits associated with size in terms of their ability to drive healthier profit margins as well as capture overall growth in an industry forecast to see slowing growth over the forecast horizon. With these benefits, IHS Technology projects that the semiconductor industry will see continued growth in market consolidation that will likely expand to the analog IC and even the discrete components sector in the coming years.
You can subscribe to the detailed data behind this analysis. Information on this research can be found at: IHS Technology Semiconductor Market Shares
Dale Ford is the Vice President of Thought Leadership for IHS Technology
Posted on 14 September 2015