Yesterday, Avago announced it was going to acquire Broadcom. These are both big companies, and their combination puts them squarely into the top five of global chip companies. As I mentioned in January, Semiconductor Consolidation is Coming. The truth is that semis are no longer a growth industry. There are no new giant product opportunities out there. Smartphones remain an important category, but growth there is slowing. Many companies are hoping for  a boost from the Internet of Things (IoT), but I think that will be a very different kind of business. (Stay tuned, big IoT report coming soon.)

As growth slows in an industry, the only way for companies to keep growing is to win market share (hard) or buy other companies. This is especially true in semiconductors because most of these companies outsource their manufacturing to the foundries like TSMC and Global Foundries. When one chip company buys another, the combined entity gets better pricing at the foundry (as they are now a bigger customer). The combination also gets to eliminate the duplicated non-design functions. You do not need two CEOs, nor two CFOs, not even two Corporate Development VPs (a not so subtle reminder that I am now looking for a new job).

For several months now, I have been going around talking to friends at chip companies preaching this view – the industry will consolidate from over a hundred companies today down to five in a few years. In these conversations, I have always used Broadcom as an example. I would note that “Even Broadcom is not too big to get acquired someday.” So apparently, someday is yesterday.

When the dust settles, I think there will be just five massive companies left in the business. (That will clear the decks for a new form of semis companies to emerge, but that is years away.) Here is my guess as to who the survivors will be:

1) Intel – despite the slowing PC market and their struggles in mobile, they generate huge amounts of cash and remain the world’s leading in improving chip manufacturing.

2) Qualcomm – despite all the skepticism on the Street, Qualcomm’s position at the lead of mobile is unchallenged. The big question for them is how do they grow. I am shocked that they are letting Avago walk away with Broadcom.

3) Avago/Broadcom – Avago is really the leading edge of industry consolidation. Their management team clearly understands the logic of consolidation and has a great eye for value.

4) Texas Instruments – The giant of the analog space. They have not been that acquisitive of late, but they have a smart finance team. I suspect they will start to become more acquisitive a little bit further out when multiples come back down closer to historical norms.

5) NXP – The Dutch giant is another leading figure in consolidation with the acquisition of Freescale announced in February. They clearly have big ambitions, and once they digest Freescale should have the ability to pick up more.

In this analysis, I am looking mostly at US companies (and NXP). But there are a couple key Asian companies to watch. The first is Mediatek of Taiwan. They are big enough to be an agent of consolidation, and have already made a few purchases. Samsung is another important player, although it is unclear if they want to buy chip design companies or just become a leading foundry supplier of everyone else. And then there is likely to be someone coming from China. It is unclear exactly who that might be. It could be Huawei’s Silicon design house HiSilicon, or it could be some company that is currently State-owned like Spreadtrum.

And that is pretty much the entire list. Beyond these names, the smaller players are more likely to be prey than predator. (I suspect we will see a mid-sized company buy up some of the smaller companies before itself getting acquired.)

This is a very different landscape than the industry is used to operating in. Many management teams today seem to think they will somehow be immune to the broader industry trends. I think that is unlikely and sooner or later, consolidation will strike even further.

(Disclosure: I own 100 shares in Broadcom.)