2016 was another eventful year for the semiconductor industry in terms of consolidation. According to SEMI, merger and acquisition (M&A) activity approached $116 billion in 2016 compared to approximately $60 billion in transactions during 2015. Companies have responded to slowing industry growth and intense pricing pressure by joining forces to gain cost synergies, increased market share, and in some cases higher average sale prices through the combination of complementary product lines. Furthermore, partly as a result of an uptick in megasized M&A deals, some key transactions have resulted in ancillary M&A activity due to regulatory concerns. For example, NXP was required to divest of its RF power business as a condition for NXP’s $12 billion merger with Freescale Semiconductor.
An additional driver of global M&A activity has been the Chinese government’s plan to invest $150 billion into the country’s semiconductor supply chain to expand the share of Chinese-made integrated circuits (ICs) in the domestic market to 70% by 2025 (from 9% currently). China’s goal of becoming a dominant player in semiconductor manufacturing will continue to spur Chinese global M&A activity for years to come as illustrated by SMIC’s purchase of a 70% stake of LFoundry in June 2016 for €49 million, which involved the first successful acquisition of a fab outside of China by a Chinese company.
As companies right-size their manufacturing portfolios following the recent industry consolidation, ATREG expects an increase in manufacturing asset divestment and acquisition opportunities in 2017. For 200mm production assets in particular, we have been seeing renewed interest in capacity acquisition, which is consistent with the gradual increase of installed 200mm capacity globally since 2009.
This capacity demand has been primarily coming from discrete, power, MEMS, analog, logic, and other device segments that require mature process technology – particularly at 90nm, 130nm, and 180nm. According to PwC, over 70% of chip content used in automobiles, mobile devices, and wearables is produced on wafer sizes at or below 200mm. With healthy growth forecasts for these segments, SEMI expects installed 200mm capacity to return to near peak levels with 5.5 million wafers per month by 2020.
Given the lack of 200mm equipment in the secondary market and the presence of some attractive operational acquisition opportunities, integrated device manufacturers (IDMs), foundries, and even financial sponsors are acquiring operational 200mm fabs to satisfy growing 200mm production needs, as illustrated by the sale of Cypress’ 200mm Minn. fab last week. Under the terms of the agreement, SkyWater Technology Foundry, backed by Minn.-based holding company Oxbow Industries, LLC, purchased the capital stock of the subsidiary to operate the fab as a stand-alone specialized foundry. The company will continue to manufacture wafers for Cypress under a multi-year supply agreement while attracting new foundry customers. The transaction allows Cypress to reduce its manufacturing footprint and cost structure while increasing the utilization of its Fab 25 located in Austin, Texas, in line with the company’s plan to improve gross margins.
My team and I remain at your disposal for any questions you may have on the market availability of semiconductor fabs (front-end and back-end) and other infrastructure-rich advanced technology manufacturing assets (LED, solar, display, etc.) around the world.