Included in the $85bn are three record breaking deals: Intel’s acquisition of Altera; NXP’s acquisition of Freescale; and Avago’s acquisition of Broadcom. In Rhines’ view, the deals are: “A large company buying a medium one, a large company acquiring another large company and a large company acquiring an even larger company.”
Speaking on a conference call last week, Rhines, pictured, wondered about the motivation behind the deals. He offered three reasons: economies of scale; governmental issues; and financial leverage.
With the rise of the foundries, Rhines questioned whether these acquisitions would bring economies of scale. “It makes less sense as more manufacturing costs are borne by the foundries, so is probably not the reason behind these acquisitions.”
Rhines thinks it’s part of a global mergers and acquisition (M&A) frenzy. Figures from Bloomberg suggest this year could see $4.5trillion spent on M&A – and Rhines believes this is simply down to the low cost of money – and it’s his opinion that the current frenzy is therefore only temporary.
But one thing worries Rhines. A theme common to all M&As is the ambition to cut operating costs. And he thinks that, with slim savings in manufacturing costs, companies will be tempted to reduce their engineering headcounts and the amount invested in R&D.
Rhines has produced some interesting analyses of the semiconductor industry over the years. In this latest analysis, he notes that R&D investment has remained ‘almost constant’ at 14% over the last 30 years. “There’s a fixed percentage of revenue you have to spend to grow your semiconductor revenue. If you choose not to invest, products will become less competitive and others will take market share.”
