A deal-making boom is underway in the chip industry, driven by a new generation of leaders focused on acquisitions, cost-cutting and profit-boosting.
Leadership changes are transforming the semiconductor industry, as a generation of founders retires or step downs and is replaced by chief executives with markedly different mind-sets. While the former tended to come from technical backgrounds, the newer breed favours financial discipline and shareholder value over risk. Their strategies, at least in part, reflect a more mature stage in the industry’s development – one in which the cost of developing new chips has risen and sales of existing chips have slowed. Investing in new technology projects has lost some of its allure.
Among this new generation of chip executives is Hock Tan, Chief Executive of Broadcom. By the time his company started pushing its $105 billion bid to acquire Qualcomm in November, he had already completed six acquisitions in four years. For his part, Qualcomm Chief Executive Steve Mollenkopf struck a $38.5 billion deal for NXP Semiconductors in 2016. Intel CEO Brian Krzanich has purchased two large companies since 2015.
Yet another CEO with an appetite for acquisition is Steve Sanghi of Microchip Technology. His company has purchased 17 chip-makers in the past 10 years, according to the New York Times. Sanghi said that Atmel, which it bought last year, was only breaking even and now has an operating profit margin of 30%. Micrel, purchased in 2015, has seen its margin fatten to more than 30% from 6%, he said. “We don’t buy companies to keep doing what they were doing,” Sanghi said. “We buy companies to fix them.”
In November 2017, first-time chief executive Matthew Murphy, who took the helm at Marvell Semiconductor in 2016, persuaded the company’s board to make a $6 billion bid for Cavium, another mid-sized chip-maker. Murphy was appointed in the wake of an accounting scandal that led to the ouster of founder and chief executive Sehat Sutardja, as well as his wife, Weili Dai, who served as president.
Murphy instituted a number of operational as well as cultural changes, and worked with the company’s engineering leaders to identify which chips should be scrapped and which merited more focus. Then Murphy turned his attention to Cavium, thinking it could help Marvell enter the cloud data centre market, dominated by internet giants, and enable it to compete with much larger rivals such as Broadcom. “You either go bold or go home,” said Marvell Chairman Rick Hill. “We’re not interested in running a small company.”
