Microsemi's $2.4B Offer To Buy PMC-Sierra Latest In Semiconductor Consolidation Wave

Chip maker Microsemi Corp. on Monday said it has offered to acquire semiconductor company PMC-Sierra, which manufactures semiconductors for telecommunications networks and data storage, for $2.4 billion.

Microsemi's proposal for Sunnyvale, Calif.-based PMC-Sierra marks the latest in a string of consolidations and potential consolidations over the past year in the semiconductor industry. The offer comes weeks after Woburn, Mass.-based Skyworks Solutions posted a competing $2 billion buyout proposal for PMC-Sierra.

The boards of both Skyworks and PMC-Sierra approved Skyworks’ proposal earlier in October, and the deal was expected to close in the first half of 2016. However, Microsemi's proposal could trump that of Skyworks. If Microsemi is successful in its bid for PMC-Sierra, it could bolster Microsemi's chip business in the communications, aerospace, and industrial sectors.

[Related: Intel CEO: Company 'Treading Water' In Sluggish PC Market, Buoyed By IoT, Data Center]

"Microsemi has a strong track record of integrating acquisitions and driving profitability, and we will benefit from increased scale, industry-leading margins, diversified market exposure, consolidated infrastructure and substantial cost savings in a combination with PMC," Microsemi CEO and Chairman James Peterson said in a statement.

Within the last year, slowing growth and rising costs drove larger deals in the chip industry. According to a report by Dealogic, referred to in The Wall Street Journal, chip companies have announced $100.6 billion in mergers and acquisitions so far in 2015, already surpassing the $37.7 billion in deals announced in 2014.

That includes several blowout acquisitions over the past few months among larger chip companies, including Intel's planned $16.7 billion acquisition of Altera Corp., and Avago Technologies' $37 billion buyout of Broadcom Corp.

"As this industry moves further to a cloud-based business model, I can understand the reasons for consolidation in order to cut costs and scale more quickly," said Andrew Kretzer, director of sales and marketing at Bold Data Technology, a Fremont, Calif.-based system builder. Kretzer said his company, which works with Avago, one of the companies involved in an acquisition in the past year, "hasn’t missed a beat in our Avago offerings, nor their wonderful support to our team and customers."

The increased rate of acquisitions comes as the chip industry faces challenges as major applications like PCs, smartphones and tablets slow in growth. Market research firm Gartner predicted that worldwide semiconductor sales will decline 0.8 percent in 2015, the first revenue decline since 2012.

Looking forward, Gartner predicts that semiconductor sales will grow 1.9 percent in 2016 to $344.1 billion, easing some of the pressure in the industry.

"[We're seeing a] lack of demand in key application areas," Andrew Norwood, research vice president at Gartner, told CRN. "The PC production is going to contract around 10 percent in 2015, Windows 10 is not driving an upgrade cycle and Skylake is coming too late to make any significant impact on 2015. The strength of the U.S. dollar is also pushing up the cost of PCs in places like Europe and Japan because key components like the CPU and DRAM are priced in dollars, making them more expensive for buyers in those regions (thus) reducing demand or moving consumers to low-cost versions."

Microsemi said that if its offer is accepted, the acquisition could close as soon as late December.

PUBLISHED OCT. 19, 2015