Disruption from IoT and Automotive Shifts Revenue Mix, Drives Consolidation in $468B Semiconductor Industry

Cypress Semiconductor Acquisition to Make Infineon Technologies AG World's Eighth-largest Chipmaker

On June 2, 2019, Infineon Technologies AG (FSE: IFX / OTCQX: IFNNY) and Cypress Semiconductor Corporation (NASDAQ: CY) announced that the companies signed a definitive agreement under which Infineon will acquire Cypress for USD 23.85 per share in cash, corresponding to an enterprise value of EUR 9.0 billion (~USD 10.1 billion). The bold bid is to strengthen offerings and counter aggressive moves by competitors over the last several years. Infineon expects to be catapulted into the top position in the supply of semiconductors to automotive OEMs, competing directly with automotive leader NXP Semiconductors.

Internet of Things has already revolutionized the consumer application industry, with various other IoT applications, such as connected cars and wearable electronics, evolving and likely to further drive opportunities for many IoT chip manufacturers across the large and complex IoT ecosystem. Huge IoT investments by companies such as Intel (US), Samsung (South Korea), IBM (US), and Qualcomm (US), along with government funding in IoT research projects, are driving the growth of the IoT market—especially in the UK, China, and Japan. The Infineon–Cypress deal will result in a wider portfolio of products for automotive, industrial, and IoT projects.

Cypress is a significant player in the IoT market because of its ultralow-power PSoC technology. However, the company was not able to use this technology beyond generic radios. With the acquisition of Broadcom’s wireless IoT business in April 2016, the company aimed to strengthen its position in embedded systems markets such as automotive and industrial. It also strived to establish itself as a leader in the consumer IoT market, which includes wearable electronics and home automation solutions. Post-acquisition, Cypress, with a range of microcontrollers with software and connectivity products, intends to sell alongside Infineon's microprocessors and sensors. The acquisition would seek to address new IoT applications into industrial and consumer markets, and supply to automotive and driver-assistance providers.

“The semiconductor industry has witnessed drastic changes in the competitive landscape over the past five years, as companies syndicate to gain scale while overcoming challenges such as rising costs and dwindling customer bases”, said Sachin G arg – Associate Vice President, Semiconductor Division at MarketsandMarkets. NXP Semiconductors NV recently announced a $1.76 billion deal for Marvell Technology Group Ltd.’s Wi-Fi connectivity business, while Nvidia Corp. agreed to buy chipmaker Mellanox Technologies Ltd. for $6.9 billion in March 2019. NXP Semiconductors N.V., a leading player in the segment and a major market share holder, is an established supplier in this industry. This trend was started in 2014-15 and is followed by this recent acquisition. It is in a favorable position for growth owing to the positive outlook for the automotive semiconductor, Industrial, and IoT markets. A broad product portfolio and the ability to form strategic collaborations and partnerships would make the company a leading player in the expected IoT boom.

The company’s acquisition of the U.S.-based Freescale Semiconductor Ltd. would help both the companies to dominate the automotive semiconductor and the general-purpose MCU products segments. With Infineon acquiring Cypress, it would result in more competitive and complex market with multiple offering and redefined market strategies, supply chain network and addressing client pain points.

With China withholding Qualcomm Inc.’s failed effort of NXP Semiconductor’s takeover by offering USD 44 billion, it is under observation of multiple players and industry as whole to see whether Infineon can garner the necessary regulatory approvals in the midst of ongoing and escalating trade battles between world’s powerful economies; the US and China.

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