Lately, the pace of acquisitions in the semiconductor industry has been dizzying. We have seen Avago gobble up PLX, maker of PCIe switches, and LSI maker of SAS controllers/ HBAs that we cover at STH. Avago, in turn, consolidated with Broadcom and is trying to purchase Qualcomm. If you were looking for an alternative to Broadcom’s PLX and LSI derived product lines, you would quickly turn to Microsemi. Microsemi has both a PCIe switch business that we have covered along with a line of SAS controllers. The SAS controllers are from Adaptec and HP’s SmartArray lines. Many are looking for alternatives. Microchip decided to further this wave of industry consolidation by announcing its plans to buy Microsemi.
Microchip Buys Microsemi for over $8 Billion
At the time of the deal’s announcement, the deal was valued at over $8 billion in equity and an enterprise value of over $10 billion. This wave of semiconductor consolidation has been seen as a negative by many of the systems suppliers. For example, anyone using Broadcom’s PLX switch line tells us how aggressive Avago and now Broadcom have been regarding supply allocations and pricing. We have also heard that the company routinely uses allocation and pricing to force vendors to use more of its IP portfolio.
The deal was initially announced highlighting $300 million in operational savings but it is reasonable to expect the companies will be able to further use an expanded product portfolio to exert pressure on vendors to use more of their IP.
We have seen a number of other acquisitions such as Marvell Cavium in the industry largely led by Broadcom’s strategy and market presence. We are in an era of semiconductor company consolidation. As a result, we expect component prices to have less pricing pressure and there is a potential for higher consumer prices as a result.