Chip manufacturer Microsemi has just acquired PMC-Sierra in an all-cash deal worth upwards of $2.5 billion. Microsemi beat out fellow chip manufacturer Skyworks to land PMC-Sierra by upping the offer from $2 billion to $2.5 billion. This acquisition is merely the latest example of the consolidation efforts taking place throughout the semiconductor industry. As customers look to purchase from fewer suppliers, chip manufacturers must scale up production, and the simplest way to accomplish this is to buy other smaller chip companies. Essentially, larger semiconductor companies are able to offer customers the most competitive pricing.
“PMC brings to Microsemi a segment of business that they previously have not participated in,”said Douglas Freedman, an analyst at Sterne Agee CRT.
“The most interesting part of the story will be how well Microsemi can manage that business. If they manage it well, it’s making Microsemi a broader, more diversified company.”
PMC-Sierra is the fourth semiconductor company acquired by Microsemi since 2014, the company has taken on nearly $1 billion to finance these deals. Although PMC-Sierra has recently experienced stalled revenue growth, they are still a much more profitable company than Microsemi. In fact, the company’s growth margin stands at 70%, which is 20% more than the industry average.
Microsemi offers a wide variety of semiconductor products for a number of different industries including communications, military, aerospace, and industry. On the other hand, PMC manufactures chips and software applications for networks that both connect and store large amount of data. Microsemi was eager to acquire PMC because they can allow them to enter a previous unexplored sector of the semiconductor industry.
Consolidation appears to be the game plan for all semiconductor manufacturers, so look for even more acquisitions in the coming months and years.
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