Find out more at btsub.sg/btdeal
You are here
Europe's biggest chipmaker says semiconductor 'goldrush' is over
[MUNICH] The semiconductor acquisitions bonanza, which soared to about US$110 billion of deals last year, is over, according to Infineon AG Chief Executive Officer Reinhard Ploss.
Industry consolidation "has decelerated," said the head of Europe's largest chipmaker by revenue, which kicked off the spate of deals with its announcement in 2014 that it would pay US$2.3 billion for International Rectifier Corp.
"It's not the same goldrush."
The wave of takeovers was prompted by the rising costs of production and a shrinking customer list, and included Intel Corp's US$14 billion acquisition of Altera Corp, NXP Semiconductors NV's US$16 billion purchase of Freescale Semiconductor Ltd and Avago Technologies Ltd's US$30 billion deal for Broadcom Corp.
Chipmakers are now digesting their purchases and focusing on product development to target new growth areas such as the Internet of things and self-driving vehicles.
For Infineon, that means a push to sell new products for cars and factories. The German company, which makes chips for power-management, sensors, radars and security, has used the acquisition of El Segundo, California-based International Rectifier to expand its existing carmaker customer base to commercial and agricultural vehicle-makers.
"We were good at talking to big automotive suppliers like Bosch, Continental and Raytheon, but not to others," Mr Ploss said in an interview in San Francisco. Even as the industry M&A is slowing down, Infineon may seek to add more complementary technologies through acquisitions, Mr Ploss said.
"Now our strategy is to go deep, go wide, go wider," said Robert LeFort, the head of US operations, talking about Infineon's sales strategy.
Liberum Capital added Infineon to a list of 10 conviction buys in Europe this month, declaring it the biggest semiconductor beneficiary globally from accelerating electric-vehicle sales.
After jumping by more than 50 per cent last year, the third-biggest gainer in Germany's benchmark DAX Index, the stock has declined 7.3 per cent this year. That values Infineon at about 14 billion euros (S$21.46 billion). The company's sales overtook those of Geneva-based competitor STMicroelectronics NV last year to become Europe's largest in the industry.
Infineon is betting on autonomous-driving technology to boost that revenue, which Ploss expects to continue growing at about 8 per cent annually. Mr Ploss said that carmakers spend at least US$500 more on semiconductors in each self-driving vehicle.
The technology's growth has meanwhile prompted Infineon to change how it supplies components. Whereas before it might have sold individual chips for engine power-management to an automotive supplier such as Robert Bosch GmbH to build into a broader system, the company now manufactures, for example, entire radar systems itself.
Not only does that allow Infineon to sell greater volumes, it also reduces costs, and a cheaper radar system increases the likelihood that it is adopted by mass-market vehicles such as Volkswagen AG's Golf compact car, potentially boosting sales even further.
In 1998, a radar - used for instance to help maneuver the vehicle and prevent collisions - would have cost a major carmaker about US$1,400. Now it's closer to US$50 and the technology is a lot less invasive for the driver.
"Back then, one engineer's wife asked if the car was a diesel because the radar was so loud," Mr LeFort said. "We're creating more value for our customers and capturing some of that value for ourselves."