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Semiconductor Merger Mania: A Change From Historical Norms?

In 2015, an amazing wave of consolidations struck the semiconductor industry. Proposed mergers approached $160B in market value and over $100B have already been consummated. That’s more than six times the largest annual merger amount in the history of the semiconductor industry.

To many, this consolidation seems natural. After all, the semiconductor industry is now more than sixty years old and the growth rate is slowing, as is common for most maturing industries. Semiconductor sales as a percentage of total electronic equipment sales have been relatively flat for the last twenty years. Consolidation through mergers gradually increases as industries mature so why should the semiconductor industry be any different?

But consolidation is a totally new phenomenon for semiconductors. Because of the rapid innovation that has occurred in the semiconductor industry over many decades, the industry has shown no consolidation through almost all its history. Consider the combined market shares of the largest companies in the industry through 2014 (Figure 1).

Figure 1: Combined market share of the top ten semiconductor companies through history.

Figure 1: Combined market share of the top ten semiconductor companies through history.

Looking back further in history, the semiconductor industry trend has been one of deconsolidation. In 1966, three companies, TI, Fairchild and Motorola, accounted for approximately 70% of the semiconductor industry revenue. By 1972, that combined market share had dropped to 53%. The largest semiconductor company today, Intel, has approximately 15% market share, just 2% more than the number one, Texas Instruments, had in 1972 (Figure 2).

Figure 2: Overall semiconductor industry has been 'DECONSOLIDATING' since the 1960s.

Figure 2: Overall semiconductor industry has been “DECONSOLIDATING” since the 1960s.

To read the rest of this article, visit EBN sister site EE Times.

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