The unexpected announcement of a merger between Taiwan’s ISSC Technologies Corp (創傑) and US firm Microchip Technology Inc last week indicates an accelerating consolidation in the integrated circuit (IC) design sector, analysts said.
The industry-wide shift toward consolidation comes amid rapid growth in the market for wearable gadgets and emerging trends in wireless technologies establishing the so-called “Internet of Things (IOT),” they said.
“The IC design industry has been consolidating in recent years, and we believe winners in this market will remain strong,” Yuanta Securities Co (元大證券) analyst Chen Chuan-chuan (陳娟娟) said in a client note on Friday.
“As such, we expect to see merger and acquisition opportunities and strategic alliances among small players with single specializations in order to meet end-market demand,” Chen said.
Chen’s comment came after Hsinchu Science Park-based (新竹科學園區) ISSC, a wireless communications chip designer focusing on Bluetooth solutions for mobile accessory products, announced on Thursday that it would be acquired by Microchip at NT$143 per share.
Based in Chandler, Arizona, Microchip Technology makes microcontroller, memory and analog semiconductors. The US firm’s NT$9.9 billion (US$328.5 million) takeover of ISSC follows two merger announcements last month between Integrated Memory Logic Ltd (安恩) and US firm Exar Corp, and between FocalTech Corp (敦泰) and Orise Technology Co (旭曜). Meanwhile, MediaTek Inc (聯發科) completed its acquisition of MStar Semiconductor Inc (晨星) on Feb. 1.
Several other niche IC design firms that have positive outlooks — such as Champion Microelectronic Corp (虹冠), On-Bright Electronics Inc (昂寶), Sitronix Technology Co (矽創) and Elite Semiconductor Memory Technology Inc (晶豪) — may see potential takeover bids ahead, Chen said.
Jerry Peng (彭茂榮), a senior researcher at the Industrial Economics and Knowledge Center of the Industrial Technology Research Institute (工研院), said in a recent report that potential growth in wearable devices and other applications for the Internet of Things would boost the entire IC supply chain in Taiwan, including IC design, semiconductor manufacturing, and chip packaging and testing.
“Nevertheless, semiconductor companies will not only pursue advanced process technologies, but also look for heterogeneous integration for semiconductor materials and microsystems in the era of IOT,” Peng said.
Microchip Technology is the world’s fourth-largest microcontroller unit vendor. The US company said in a joint statement on Thursday that the acquisition of ISSC would complement its strength in wireless technology and its initiative in the IOT, while ISSC said the deal would expand its sales scale and benefit shareholders.
“Bluetooth applications in the cloud-computing service segments will continue to broaden, such as applications in wearable devices and the IOT. Coupled with continuous wireless speaker growth, we believe ISSC will benefit from higher growth among ‘appcessories’ in 2014,” Chen said. “Appcessories” refers to Web-enabled digital accessories and gadgets, sometimes connected with Bluetooth technology.
The deal is expected to close by the end of the year. ISSC is to become a wholly owned subsidiary of Microchip Technology. The local company said it would then apply to delist itself from the GRETAI Securities Market.
With capital of NT$673.14 million, ISSC primarily targets “appcessories” as demand for cloud connection via Bluetooth has risen significantly in recent years.
The company made NT$42.03 billion in net income in the first quarter, or earnings per share (EPS) of NT$0.63. Revenue was NT$439.15 million last quarter, with speakers and headset applications accounting for about 85 percent of its total revenue in the quarter and app-enabled accessories contributing the remaining 15 percent.
As growth in Bluetooth chip shipments is set to resume this quarter thanks to seasonal demand and new product launches, ISSC’s revenue is forecast to expand by 33.4 percent to NT$586 million this quarter and net income would grow by 135 percent to NT$99 million from last quarter, Yuanta said. That is compared with Capital Securities Corp’s (群益證券) estimates of NT$609 million in revenue and NT$106 million in net income.
Yuanta predicted that ISSC would see sales increase 15.4 percent to NT$2.41 billion for this year, with EPS of NT$6.47, while Capital estimated NT$2.47 billion in revenue and an EPS of NT$5.62.
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