MWC: Semiconductor Consolidation Cont’d

One of the biggest pieces of news last week was the sale of Freescale to NXP. Both companies have products targeting mobile, but neither can be considered overly reliant on mobile. So while this was a major deal, the direct impact on mobile is a bit low.

I noted in January that there is going to be major consolidation in the semiconductor industry in coming years. This was just the start. There are still something like 300 analog chip vendors in the market, a number which just feels too big in a world with no obvious hyper-growth end-market.

What I found most interesting was the degree to which the many small or mid-sized chip companies seem ambivalent this consolidation. I spoke with a few CEOs and Corporate Development executives from these companies, and they all seemed to feel that NXP/Freescale really had nothing to do with them. The common theme seems to be that the two companies have few overlapping areas and that the combination was driven by financial motives rather than technological ones. Well…. Yes, that is exactly the point. Semiconductors are not a growth business anymore. It is a cyclical business where scale, operations and margins matter most.

I think we are moving to an industry model where there are only two kinds of companies left – acquirers and targets. Pick which one you are and run your company accordingly. This is not the same as small companies and large companies. Small companies have the ability (and the currency in the form of their high-multiple stock prices) to become large companies. And large companies are going to wake up some morning to realize they are not so large relative to their peers anymore.

On the topic of semiconductors, one of the big off-shoots of the IoT delirium is the notion of sensor networks. Millions of sensors in everything connected to the Internet somehow. I have spent a lot of time looking at the chips that make those connections, but I noticed at the show how the big chip companies lack as robust a portfolio of sensors. Barometers, pulse rate, breath rate, blood oxygen, humidity, temperature – the list goes on. Some of these categories are getting addressed somewhere in the supply chain, but the category is far from robust.

If I were running a semiconductor Corp Dev team, I would be scouring the world for interesting new products here. I get the sense that this taking place, but I imagine the degree of intensity will increase in coming months.

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