RESEARCH REPORT

In brief

In brief

  • Traditional organic growth is dead in the semiconductor industry, due to the rising cost of R&D, the speed of technology turnover and a more demanding, diverse customer base. Instead, leaders are turning to M&A as a growth strategy.
  • Complexities arise as leaders of semiconductor companies need to navigate the constantly changing global landscape and the plethora of new competitors from different industries who want to stake their claim in the semiconductor race.


Leaders at core semiconductor companies see opportunity at every turn for a broader product portfolio—from providing connectivity solutions in cars, to technology companies’ push for Artificial Intelligence (AI) support. But they need the resources and capabilities to drive competitive agility and take advantage of those opportunities. M&A can get them there, at speed.

Traditional organic growth is dead. M&A is the answer.

What’s changed

Customer expectations. Intelligent machines and the Internet of Things (IoT) have increased the demands placed on chips. Customers expect more diverse, sophisticated applications, from smart vehicles to connected homes.

Design windows. Semiconductor companies do not have the luxury of time to master the learning necessary, as competitors move quickly to create growth for themselves. Acquiring expertise is the only feasible option. And with talent scarce, this means acquiring a company with that expertise.

Cost of R&D. With the design cost by technology node increasing dramatically—a 10x increase from 28nm to 5nm—companies are searching for a solution to not only stay current, but expand R&D to cover broader product portfolios.



Beyond traditional M&A

As semiconductor companies use M&A as a tool to help them transform their business to enter new industries, markets and geographies, keeping their business robust is as tricky as it is essential:

Non-traditional competitors. Companies in a variety of industries are moving up and down the technology stack to control more elements of their cost structure and design ecosystem. As a result, semiconductor companies’ main competition now comes from outside their own industry.

Geopolitical factors and an increasingly complex global environment mandate that companies define acquisition targets by taking location into account as never before. Just three deals were blocked due to government intervention or regulatory restrictions from 2013 through 2015. But from 2016 through 2018, that number more than tripled, rising to 13 deals that fell through.

The number of deals that were blocked or lapsed is on the rise

This diagram shows from 2013 to Q1 2018 the number of deals that were blocked or lapsed.

Just three deals were blocked or lapsed due to government intervention or regulatory restrictions from 2013 through 2015. But from 2016 through 2018, that number multiplied, rising to 13 deals that fell through.

Fueling growth

Accenture Strategy sees leading semiconductor companies using M&A for three major reasons to help better equip themselves for the future:

Growing the core. Some companies pursue growth via expansion in existing markets and customer segments, across an existing product set or within a customer market. These companies may also be divesting assets in non-core business areas.

Migrating to adjacent businesses. A number of semiconductor companies grow via expansion along the value chain. They use new distribution channels, new geographies or product and technology modifications to serve new customer segments.

Pivoting to new opportunities. More semiconductor companies are achieving growth via completely new products and services, migrating into “white spaces.” Doing so involves risk, and market reaction is not always positive.



Smooth the journey

While using M&A to fuel growth is a complex process, a few first moves can help smooth the journey.

Adapt to geopolitics. Forward-thinking business leaders adapt their M&A strategy to keep pace not only with the highly varied business environment of the semiconductor industry, but with the many regulatory and government requests and concerns. Expect divestitures or limits on acquiring certain intellectual property as key stipulations to achieve official acquisition approval.

Base target screening process on your technology roadmaps. Leading semiconductor companies continue to invest in their core, while selecting M&A targets carefully to either move up the value chain or across the stack—and to increase the markets served by their firm’s existing silicon investment.

Test with joint ventures. Long qualification windows and highly sensitive customers mean savvy leadership must truly understand the impacts of transformational M&A deals versus smaller, less significant M&A activity. Do not force integration and transformation to achieve synergies at the expense of the acquired company. Testing the waters with a joint venture can help your company achieve value—and ensure value creation—before acquiring.

About the Authors
Syed Alam
Managing Director – Accenture Strategy, Communications, Media & Technology

Gregg Albert
Managing Director – Accenture Strategy, Mergers & Acquisitions

Sven Wahle
Managing Director – Accenture Strategy, Mergers & Acquisitions

Timothy Chu
Senior Manager – Accenture Strategy, Communications, Media & Technology
Thomas Stuckey

Contributor

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