Semiconductor companies merge and restructure and grow

Two recent paradoxes in the global semiconductor industry have caused concern. First, Texas Instruments used 6.5 billion U.S. dollars in the acquisition of National Semiconductors (NS). The other is Israel’s foundry TowerJazz, which spent USD 140 million to acquire Micron’s 8-inch production line in Japan.

The merger of TD and Texas Instruments is a big deal. One of the reasons to think about it is why it is always successful. At present, Texas Instruments ranks fourth in the world, ranking behind Intel, Samsung and Toshiba. It is the world's largest analog circuit in 2010, with annual sales of analog circuits of 6.2 billion US dollars, accounting for 14.7% of global analog circuits of 42 billion US dollars. Obviously it has other products, total sales of 12.3 billion US dollars in 2010. And NS only accounts for 3% in the global analog circuit market. The motivation for this merger was at Texas Instruments, which tried to further extend the distance between the hot pursuit of STM (10.1%), and achieved a market share of 20%.

The development path of TI is very innovative. In 2009, it used the price of an 8-inch production line and US$170 million merged Qimonda’s 12-inch memory production line in the United States. Then in 2010 it bought Chengdu Chengxin with 1.18 billion yuan (RMB), and another 8-inch production line for Japan's Spansion. Therefore, its strategy is to use external cooperation in high-end chips, and purchase production lines at very cheap prices to expand production capacity, so the return on investment is high.

Another Israeli TowerJazz, ranked fifth in the world in 2010, has sales of US$510 million. The US$140 million merger with Micron’s 8-inch production line in Japan has a monthly production capacity of about 60,000 units. This has led TowerJazz's capacity to nearly double, in order to achieve sales of $1 billion in 2014.

Difficulties in Mergers and Reorganizations The head of the Department of Management of the Ministry of Industry and Information Technology recently proposed that efforts will be made to break the bottleneck of capital, technology, market, talents, and policies. While investing more in the integrated circuit (IC) industry, it will vigorously advance during the 12th five-year period. Corporate mergers and reorganizations, nurturing enterprises with international competitiveness, and realizing the leap in the development of the industrial group.

Some people in the industry think that during the 12th Five-Year Plan period, enterprise integration will be the main theme of the software and IC industry. The industry will usher in a wave of "mergers and acquisitions and reorganizations" boom. Industry leaders will emerge one after another and industry concentration will increase.

The above wish is wonderful. However, in the case of China's semiconductor industry, the complexity and arduousness of mergers and acquisitions may have to be repositioned and recognized. Because we also faced some good opportunities before, including the Singapore franchise and Qimonda's 12-inch production line for sale, we also noticed and acted. We reportedly also handed over the report to the above. In addition, Shandong Inspur and other companies also have merger and acquisition intentions, hoping to receive state funding. stand by. However, no substantial action was eventually seen.

Mergers and reorganizations should be the autonomous behavior of enterprises. The key lies in the operation of funds. What is the purpose of investment? The current situation of China's semiconductor industry is relatively complex, and the possible difficulties are two aspects. First, the company's cash flow is small, the preconditions for the lack of operation (referring to non-state-owned listed companies); second, some companies have not yet listed, and two Institutional companies cross together. Therefore, such deep-seated problems cannot be resolved in the short term. Therefore, whether the merger and reorganization of the semiconductor industry can be started is not very optimistic.

Generally, global mergers are nothing more than three purposes: access to technology; expansion of production capacity; and the fight against potential adversaries. But everything depends on the rate of return in the future market.

At the current stage, the merger and reorganization of the Chinese semiconductor industry is either led by the government or conducted from the top down. However, mergers require capital and funds need to be submitted for approval. However, the decision to merge and reorganize under the state-owned system tends to be hesitant. Because of the success of mergers, they are not directly beneficiaries. However, for non-state-owned enterprises, if their own cash flow is sufficient, they can be directly decided by the board of directors. The status quo is that most semiconductor companies currently have low gross margins, and even if the stock price after the listing is not high enough to fully fund the merger, the source of funding has become a roadblocker. If you want to lend through banks, or introduce strategic investment, etc., all this is not easy to achieve. In short, mergers and reorganizations are an important financial operation of a company, and it is obviously necessary to consider the rate of return on investment. The need to learn more about mergers and reorganizations is a very important means in the running of an enterprise. It cannot be a whim but requires learning and accumulating experience. To succeed, a lot of "homework" needs to be done first. In addition to the objectives are clear, the analysis of the financial capabilities that may be used and the possible mergers and acquisitions, as well as the forecast of the final investment rate of return are all very important. In addition, the choice of timing is also critical. For example, after the 3.11 earthquake in Japan, the global semiconductor industry chain was affected, so recent mergers and acquisitions are very active and are highly correlated with stock prices. Therefore, we must fight for preparations and wait for opportunities to come. We must not wait for an opportunity to start the analysis and operation. It will certainly delay the timing. Conclusion The 12th Five-Year Plan of China's semiconductor industry has basically been released, the goal is clear, and there is already consensus that it is hoped to cultivate large international companies with influence through mergers and acquisitions. Although it may be difficult to implement mergers and reorganizations at this stage, practice and modelling are needed, but you can believe that you can always find a suitable method for the Chinese semiconductor industry. However, mergers and reorganizations are only a means and it is impossible to solve all problems. Therefore, China's semiconductor industry must have a long-term strategy. The key lies in strengthening its competitive strength and carrying out actions to be sacrificed under limited financial conditions.

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