Speaking on a conference call last week, Rhines offered three reasons for the current 'frenzy' - economies of scale, governmental issues and financial leverage. And he thinks it's the latter reason which is fuelling the current trend, with the low cost of money underlying the deals.
Rhines - who has produced some interesting analyses of the semiconductor industry - sees the current trend as part of a broader M&A frenzy. Citing figures from Bloomberg, Rhines says there will be $4.5trillion invested in M&As this year - about the same as the last M&A peak in 2007, which was followed by the financial crisis. It's his opinion this activity is all down to the low cost of money and will, therefore, be a temporary phemomenon.
Rhines doesn't see any economies of scale from manufacturing consolidation as most companies now use foundries. What worries him is that the cost of the acquisitions might well be met by reducing engineering headcounts and cutting the amount invested by companies in R&D.
He believes that all semiconductor companies need to invest at least 14% a year in order to grow their revenues. Failure to spend at this level will reduce their ability to compete and allow rivals to take market share.
So are these deals all about short term shareholder benefit, rather than long term corporate growth? Time, as they say, will tell.
