Big semiconductor companies are getting bigger. Vigorous M&A activity in 2015 and 2016 has reshaped the landscape of the semiconductor industry, with the top companies now controlling a much greater percentage of market share, reports IC Insights. Not including foundries, IC Insights forecasts five semiconductor suppliers — Intel, Samsung, Qualcomm, Broadcom, and SK Hynix — will account for 41 percent market share in 2016.
This represents a nine-point increase from the 32 percent market share held by the top five suppliers 10 years ago. Furthermore, IC Insights forecasts that the top 10 semiconductor suppliers will account for 56 percent market share in 2016 — an 11-point swing from 45 percent in 2006. The top 25 companies will account for more than three-quarters of all semiconductor sales this year.
This dynamic may sound familiar to buyers and engineers that have been in the industry for 20-plus years. In the early 1990s a handful of semiconductor companies dominated the market and offered a wide range of active components. These companies had significant influence on semiconductor distribution: several U.S.-based chip companies quietly discouraged their distributors from selling Japanese brands. This so-called “shelf-sharing” prohibition wasn’t limited to chips — top IP&E companies also refused to share shelf with competitors. This practice was, in part, suppliers’ effort to get maximum sales focus from their distributors.
Shelf-sharing was also about clout. Semiconductor companies at that time — including Motorola Semiconductor, National Semiconductor and Texas Instruments — dwarfed their distribution partners in size. Current distribution market leader Arrow Electronics Inc.’s revenue just broke $1 billion in 1990; Intel’s quarterly revenue topped $1 billion that year. Top chip makers represented significant volume-sales opportunities for distributors as they offered a soup-to-nuts variety of semiconductors. As these companies began to split apart into specialty suppliers, they became smaller and their customers and distributors grew bigger. Eventually OEMs wanted the option of buying a variety of brands from a single distributor; distributors grew big enough to push back on their suppliers; and shelf-sharing (for the most part) went away.
Fast forward to 2016. Two of IC Insights’ the top five chip makers — Qualcomm and Broadcom — are typically not found on the same distribution linecard. In May, Broadcom inked an exclusive deal with Avnet Inc., although Broadcom products are available at Arrow though Cypress’ acquisition of certain Broadcom products. Qualcomm shows up on Arrow’s linecard but is absent from Avnet’s. Qualcomm’s acquisition of NXP is the big question mark for the channel — NXP is sold through several distributors that don’t carry Qualcomm. A number of distributors contacted for this article declined to discuss Qualcomm/NXP’s likely distribution strategy.
The year 2016 is now forecast to be the second-largest year ever for chip industry M&A announcements, according to IC Insights, thanks to three major deals struck in 3Q16 that have a combined total value of $51.0 billion. These deals were SoftBank’s purchase of ARM, Analog Devices’ intended purchase of Linear Technology, and Renesas’ potential acquisition of Intersil. With the surge in mergers and acquisitions expected to continue over the next few years, IC Insights believes that the consolidation will raise the shares of the top suppliers to even loftier levels. It may also raise complications for the distribution channel.