The semiconductor industry bounced back in 2019, reversing two consecutive mediocre years to reach highs not seen since 2016 . It was bolstered by a wave of mergers and acquisitions, including multiple deals valued above $1 billion. And while this resurgence is a positive sign for everyone in the industry, it’s also a harbinger of change.
M&A activity sped up last year because many industry leaders believe consolidation is the only path forward. They see opportunities to connect a world of digital devices or bring a new era of artificial intelligence. But they also know that traditional chip companies aren’t equipped to become major tech players in the world of 2020 and beyond.
In order to remain competitive and capitalize on a bullish industry outlook, semiconductor companies are starting to realize they need to expand their talent pool and extend their expertise. Simply stated, they need to look beyond the semiconductor. This represents a paradigm shift in the industry, and while it’s too soon to proclaim “adapt or die,” everyone should be paying close attention.
The Future of Semiconductor Companies
As recently as five or six years ago, product developers making something like a cellphone would find the chip components they needed from several different sources, then integrate them in-house to meet the product requirements. Now, they’re expecting the semiconductor producer to do that integration, building the subsystem and providing a commercial-grade software ready to place their own technology on top.
Semiconductor companies are used to subsidizing software in order to boost chip sales. But they’re not accustomed to treating software like the central product and chips as just one component. Learning how to plan, monetize, and execute software projects doesn’t come easily or cheaply, making M&As the only viable option in many cases.
Broadcom exemplifies this strategy. It bought companies like CA Technologies and Symantec that could add software expertise to Broadcom’s already capable chip department. In doing so, it saw what the future of the semiconductor industry looked like and adapted early to its demands. The rest of the industry will need to follow that lead.
Forces in Favor of Mergers and Acquisitions
For companies without the expansive resources of Broadcom, identifying the right acquisition strategy isn’t easy. Selecting the wrong company or integrating it ineffectively could both have disastrous consequences. Despite the risks, however, decisions must be made, because the companies that don’t pursue strategic acquisitions will struggle to remain relevant. If that sounds hyperbolic, consider some of the forces at play:
No matter how you feel about the recent uptick in M&A activity, the implications are clear: Companies need to be preparing for the industry of the future. That means forming partnerships while the opportunities are still available.
Utpal Bakshi
Utpal Bakshi is the Global Head, Hi-Tech Vertical, Wipro Limited.
As a part of his role, Utpal oversees global P&Ls for semiconductors, computer storage and peripherals verticals and is responsible for end-to-end sales and delivery across all lines of business, including engineering services, consulting, digital and IT.
With over 20 years of experience, Utpal is also a trusted adviser to several fortune 500 companies, advising them on how to transform their engineering and manufacturing functions and leading them in their digital transformation journey across the U.S., Canada, China, India, Europe and Japan.
Prior to joining Wipro, Utpal served as Senior Vice President & Head of the North America Engineering & IoT Business for Tech Mahindra. Utpal holds a Bachelor of Engineering in Computer Science from Maulana Azad National Institute of Technology and an MBA from the Management Development Institute in Gurgaon, India.