What is the best thing to do in times of economic turmoil? Of course, take advantage of the discount copy bottom. The semiconductor industry seems to have mastered this money-saving skill recently, with news of big mergers and acquisitions coming out. While everyone is wondering how much SoftBank will sell arm, which it bought for $32bn, U.S. semiconductor maker Analog Devices Inc (ADI) snapped up rival Maxim Integrated Products for $20.9bn to win the biggest US acquisition this year.
ADI and Mesin are both head players in analog chip fields. ADI ranks second and Ussin Seventh in the 2019 Global Analog Integrated Chip Manufacturers Rankings released by IC Insights.
As a result of the merger, ADI will become a $68 billion analog IC giant, close to rival Texas Instruments (19%) in size.
For a long time, when it comes to chips, the first reaction may be Intel, Nvida, Qualcomm, Heath, UNISOC and other focused microprocessor digital integrated chips.
The analog chip market, by contrast, is not glitzy, even described by Bloomberg as “long-stalled water”, arguing that it is not worth studying.
But apparently, the prophet was punched in the face. In recent years, the analog chip field has had some twists and tricks.
Especially at a time when the global economy is in a downturn, such a relatively cold market, with a $20.9 billion merger, sounds strange.
When we worry about escalating the Sino-US conflict, the seemingly insignificant analog chip is naturally worth savoring. Will ADI’s merger with Maxim stir up the global analog chip market and drive Texas Instruments down to the perennial Iron Throne? What impact will these changes have on China’s semiconductor industry?
Take this merger as an opportunity to jointly examine the current pattern of analog chips.
Analog chips in change:
Ask the canal that is as clear as promised, for there is a source of live water to come.
Turn on the back of your phone and you’ll see a black chip with a star- cloth. Not surprising, but led to countless heroes around the world. One of the larger, cm square CPU/GPU integrated chip, is more familiar with the processing of digital information high-end smart chip. And the little black blocks around them are analog chips.
Their role is to convert the light, current, temperature, etc. received by each sensor into electrical signals, which in turn allow the digital chip to perceive and process.
For example, an analog chip can transmit the light signal of the camera sensor to a microprocessor, tell the CPU/GPU where it is now, assist in power management, and keep your phone on standby for longer.
It can be said that analog chips are the bridge between the real world and the digital world, so its applications are almost all over our lives.
From mobile phones, computers, digital cameras and other personal electronic devices, to the industrial field of temperature detectors, aircraft systems, tight medical instruments, automotive driving systems and so on, there are analog chips.
The external world of various continuity parameters, such as sound, temperature, light source, pressure and so on, after the sensor into electrical signal, in the analog chip system for further amplification, filtering and other processing, “conversion” into digital signals, can be used for microprocessors, can also be directly output to the executor to complete the task.
And such an important component, its manufacturing process requirements are not as high as digital chips, the unit price is also very cheap, about 1 dollars, and once designed and applied, the life cycle is extremely long.
Digital chips need to be replaced almost every a year or two at the urging of Moore’s Law, and an analog chip tends to hold firm for five or six years.
Easy to produce and sell for a long time, this kind of good product which manufacturer can not rush to engage? But the analog chip bias puts the problem ahead:
First of all, analog chip design is a special “face-to-face” thing. Unlike digital chips, which can accelerate progress with automated tools and standardized processes, analog chips are much more difficult to engineers with experience and craftsmanship, requiring a comprehensive design capability for the physical performance of the device, topology design, and layout wiring. And it often takes 5-10 years to train a top talent, so the idea of setting up a grass-roots team to start work is no longer a play.
In fact, the annual research and development costs of head simulation chip enterprises in the revenue of more than 10%, the right technology innovation industry.
Coupled with industrial, automotive, medical equipment and other fields of analog chip reliability and durability requirements are very high, fault tolerance is very low, for suppliers of the choice of natural consideration of brand reputation, which also means that the new venture in the short term difficult to gain market trust.
For example, you want to build a self-driving car, once the car failure will cause traffic accidents, in the purchase of chips will be casually searcha for a factory order, or carefully select the industry’s well-known companies, let them tailor? What if it’s an MRI or an airplane?
Because not affected by Moore’s law, products and technology are difficult to be easily replaced, so analog chip products, although low price, but the product cycle and production scale efficiency is very strong, product life can reach 5-10 years, so the gross margin is considerable. It can be said that 70% is not unusual, 40% is “screwed up”, ADI and Mesin gross margin of up to 65%.
These all determine that the analog chip is a strong, lonely and defeated oligarchy field, leading manufacturers in a solid position, new entrants will almost always cool. In the past decade, Texas Instruments, ADI, ST, Infineon, etc. have never dropped out of the global RANKING TOP5.
Although not as well known to the general public as digital chips, analog chips are a model of “smouldering making a fortune”. Just need to serve the demanding industrial customers can turn the pot full, why bother to carry out mergers?
This starts with the “living water” in the field of analog chips.
Texas Instruments’ Iron Throne, ADI’s heart of victory.
Let’s go back to the beginning of the merger.
In 2014, ADI, ranked 4th, succeeded in joining texas instruments by acquiring Linear. The acquisition of Meixin is seen as an important measure to challenge the position of the boss.
In fact, there had been news before that BOTH ADI and Texas Instruments wanted to buy Theletter, which had a market capacity of only about $9.4 billion, and both felt they were not quite right. Why would $20.9 billion be the right thing to do in 2020?
Obviously it’s not ADI that has so much money to know how to spend it, it’s that there’s a new change in the market.
In fact, there have been a number of mergers and acquisitions around analog chips in recent years. In Europe, Infineon bought Cypress Semiconductor for 8.4 billion euros ($9.4 billion), NXP acquired Wi-Fi and Bluetooth connectivity from McVeix Technologies Inc. and Onme cs ltd. bought Quantenna, a Provider of Wi-Fi Solutions, for $1.1 billion.
To narrow the market gap with competitors through mergers and acquisitions, the changes faced by analog chips are reflected from the side.
First, the rise of smart goods and personal end markets has given birth to new industrial demand.
The essence of analog chips is to capture, capture and simulate information in the real world, so real-world demand changes are also rapidly responded to in this market.
On the one hand, analog chips from industrial applications to the personal end market, low power consumption, low quality and mobile devices in the scale of growth, power management efficiency requirements are more urgent, which also drives higher precision, higher performance, smaller volume of power management chips, become the electronics industry’s new engine.
At the same time, the development of highly intelligent new industries, such as autonomous driving, electric vehicles and smart manufacturing, has also made it imperative to upgrade analog chips. The requirement of energy saving in the industrial sector also promotes the power management chip to continuously improve the conversion efficiency.
At present, the growth rate of analog chip market size has been significantly higher than that of microprocessors, logic chips and other types of chips. And the development of global 5G, RF front end will also usher in a new generation, chip price double-litre.
According to IC Insights’ forecast, the analog chip industry market grew at a CAGR of 6.6%, higher than the overall growth rate of 5.1% in the integrated circuit industry, ranking first in the growth rate of integrated circuit segmentation.
Such a market is of course very fragrant, and running horses is essential. Texas Instruments announced in June that it will invest $3.1 billion to build a new 12-inch fab. ADI clearly needs to stay up.
Second, in the uncertain economic and political situation, radical investment and conservative mergerhave advantages and disadvantages.
Unlike Texas Instruments’ big investment, ADI has chosen to respond by acquiring rival Meiton. ADI’s CEO, Vincent C. Announcing the merger, Vincent Roach, chief executive, said: “In an increasingly competitive industry, scale is critical. “
Clearly, the downward pressure on the market is an important reason for the merger.
Sales of custom analog chips, such as industrial-grade general analog chips and communications, have fallen as a result of the overall downturn in traditional manufacturing, such as automobiles.
Sales of ADI and Maxim’s analog chips fell 6% and 12% year-on-year in 2019, respectively, according to the results. In the second quarter of this year, ADI’s total revenue was $1.317 billion, down 13.73 percent from a year earlier.
Previously claimed that “the purchase price makes their own heart will be carefully considered” the United States letter also can not maintain the high cold people set up. Holding the group to warm up, cash as king, competing with rivals and through the harsh economic winter, has become the core way to deal with change in short-term fluctuations.
The merger will have more than 10,000 engineers and $1.5 billion in research and development. ADI also revealed that the acquisition will save the company $275 million in costs over the next two years.
All of this will help ADI make its overall financial position better, but it could give Wall Street investors a bad hand.
Third, the competitive advantage gap under the decentralized category is opened by complementarity in the short term.
As we mentioned earlier, the development cycle in analog chip field is very long, and there are many product stakes, each manufacturer is difficult to swallow all whales, which leads to each has its own advantages of products and sites, industry concentration is very low.
Texas Instruments has been the industry leader all year round, but its market share is only 18%, which is hard to imagine in other areas. The second-place ADI market share is only 9%, not very good.
Want to move the ranking, relying on investment in research and development innovation is difficult to quickly effective, so mergers and acquisitions complement each other, looking for incremental opportunities, is a special effect stake. Infineon, for example, acquired International Rectifier for power management system technology, and Cypress, for its MCU, storage and interconnect technology, combined with its own power semiconductors.
ADI has previously achieved full-band coverage through the acquisition of Radio Frequency chip maker Hittite, and the acquisition of Linear Technology’s enhanced power ICs to finish highonth.
Back in the day, ADI’s strengths are in industrial, communications, and medical, while Mesin has mastered key technologies in the direction of power signal conversion and voltage regulation in automotive and data centers that ADI does not have.
The two superimposed, just in time to match Texas Instruments’ strong PK.
Simulation giant how ambitious, from this day to month for a new day.
We’ve sorted out almost everything about the reasons for ADI’s acquisition of Mesin. So what do these changes mean for the Chinese market?
The most direct impact in the consumer level, along with the increase in market concentration, analog chip giants have a stronger pricing voice, which means that the future of analog chips and even related equipment costs will rise directly.
In particular, the U.S. corporate background, there may be supply chain disruption, import restrictions, tariff penalties and other risks.
China is currently the world’s largest consumer market for electronics, with a CAGR of about 13.58 percent. For Chinese industrial users, it is inevitable to plan ahead for supply chain reserves and actively prepare for “beautification”.
It is worth noting that the merger and reorganization of analog chips takes place within the location, that is, the United States, European giants in their respective continental plate “internal digestion.”
In fact, a decade ago the names of a hundred semiconductor companies could be found on nasdaq, but now there are only 40, a cruel effect that has expanded the giant’s advantage with the growth of the market.
Today’s mergers and acquisitions have also widened Europe’s and Europe’s lead in analog ICs, further opening the gap with Asia (China) and making the latter’s catch-up even harder.
Of course, the opportunities are changing. Although There is a realistic gap between Chinese analog chip manufacturers and international giants in technology, new opportunities are brewing under the wave of geo-visualization, beautification and intelligence.
Most typically, analog chip sub-track is numerous, there is no one giant all monopoly advantage situation, which gives domestic manufacturers to create an overtaking window.
The application of analog chip is closely related to the specific industrial needs, and needs to work with industry customers to develop customized products. Such non-standardized products should work closely with users to communicate, and put forward higher requirements for independent intellectual property rights, technical reliability, etc., which will compete for a more share of Chinese semiconductor enterprises.
Texas Instruments, ADI and other analog giants, are from the United States industry, defense and other huge demand in the establishment of the growth, China as the largest semiconductor market in the market, there is no doubt that there are hatching their own simulation giant conditions and space.
No King Kong drill naturally can not take the porcelain live, the development opportunities of Chinese chip manufacturers also lies in, China’s growing team of engineers.
Especially in the field of analog chips, excellent engineers are the core of the technical threshold, but also these people are driving the renewal of electronic infrastructure.
Apple CEO Tim Cook, referring to the core reasons for choosing China, said that from a supply chain perspective, labor costs are not the reason for China, which was no longer a country with low labor costs years ago. Mainly because Apple’s products require very advanced tools, while China (engineers) can provide the most advanced skills.
“In the U.S., i don’t know if I can have a full conference room, but in China, there can be more than one football field.”
There are talent, there is a market, there is a path, such an industrial cluster is destined to be born their own gold signboard. It’s just early or late.
From this point of view, the United States in the field of semiconductors, all kinds of demons, is not to force the long-term competitiveness of China’s industry growth “pressure.”
Even in the ultra-difficult field of semiconductors, analog chips are considered to be an extremely difficult bone to chew. This is a corner that is easily forgotten by time, and it is also a rich mine that takes time to breed.
Behind its changing days, but also stealing the new pattern of day-to-day atmosphere.