Two Major Chip Mergers Occur Globally Within 24 Hours

A major wave of global semiconductor industry consolidation is just beginning.

Infineon Acquires Cypress

On the afternoon of June 3, Beijing time, German semiconductor company Infineon announced that it will acquire Cypress Semiconductor for $23.85 per share in cash, in a deal valued at approximately €9 billion (approximately RMB 69.5 billion).

Informed sources revealed that Infineon’s valuation of Cypress is close to $10 billion, including debt. Infineon will acquire Cypress shares at $23–24 per share, which is more than 50% higher than the price at which Cypress considered selling after receiving the acquisition offer. Last Friday (May 31), Cypress shares closed at $17.82 per share, with a market capitalization of $6.5 billion. Influenced by this news, on Monday, Cypress Semiconductor’s pre-market stock price surged 27%, ultimately closing up 23.85%, with a market capitalization of $8.06 billion.

The acquiree, Cypress, is a well-known U.S. chip manufacturer, primarily providing core high-performance, high-quality solutions for embedded systems. Its products are used in automotive, industrial, home automation and appliances, consumer electronics, and medical devices, among other fields, and it holds a market-leading position in USB technology and USB-C controllers.

The acquirer, Infineon, was officially founded in Munich, Germany, in 1999, and is one of the world’s leading semiconductor companies, primarily providing chips for the automotive and industrial process sectors. Its predecessor was the semiconductor division of Siemens Group, which became independent in 1999 and went public in 2000. The Chinese name of Infineon was originally Yiheng Technology, which was changed to Yingfeiling (Infineon) after 2002.

In July 2016, Infineon acquired the Wolfspeed power and radio frequency business unit from U.S. LED manufacturer Cree for $850 million. Infineon stated that $720 million of this would be funded through bank loans, with an additional $130 million paid in cash. It is reported that this division was Cree’s most profitable business unit, focusing on semiconductor energy control.

In August 2018, Infineon announced the acquisition of STMicroelectronics, and in October, announced the acquisition of Dutch semiconductor company Innoluce to supplement its leading advantage in the booming autonomous driving technology sensor market.

Although its acquisition spree continues, as the market environment becomes more complex, Infineon faces pressure from declining market capitalization amid fierce competition. As of now, its market capitalization is €18.2 billion (approximately $20 billion), and its stock price has fallen by nearly one-third over the past year.

Against the backdrop of rising industry costs and a shrinking customer base, the semiconductor industry has been consolidating and reshaping to achieve scale expansion. Recently, NXP Semiconductors announced a $1.76 billion deal with Marvell Technology Group Ltd. for its Wi-Fi connectivity business, while Nvidia was reported in March to acquire Israeli chip manufacturer Mellanox for $6.9 billion.

Unigroup Guoxin Acquires Linxens

Just 24 hours earlier, on the evening of June 2, China’s leading security chip company, Unigroup Guoxin, announced that it plans to acquire 100% equity of Unigroup Liansheng, under the same controlling entity, through issuing shares. The preliminary agreed price is RMB 18 billion, ultimately controlling the French leading security chip component company Linxens through Unigroup Liansheng. Audit and evaluation work has not yet been finalized.

Unigroup Guoxin is a semiconductor industry listed company under Tsinghua Unigroup. It is one of the chip design leading companies in A-share listed companies with the most diverse fields, primarily involved in five areas: smart security chips, special integrated circuits, memory chips, FPGAs, and semiconductor power devices. Last year, in the list of China’s top ten chip design companies announced by Professor Wei Shaojun, Chairman of the Integrated Design Branch of the China Semiconductor Industry Association, Unigroup Guoxin ranked 10th.

Linxens is one of the world’s largest manufacturers of smart security chip components by sales scale. Its main business includes the design and production of micro-connectors for smart security chips, RFID inlays and antennas, and ultra-thin flexible LED light strips, which are upstream and downstream in the industry chain of Unigroup Guoxin’s security chip business, showing strong synergistic effects.

On May 21 last year, Tsinghua Unigroup established Unigroup Liansheng to acquire Linxens-related assets, making Linxens a core asset under Unigroup Liansheng.

Unigroup Guoxin stated that after the transaction is completed, the company will achieve upstream and downstream integration through business consolidation and division of labor, expand the company’s overseas smart security chip business, and enhance global competitiveness and risk resistance.

After the transaction, Unigroup Liansheng will be included in the listed company’s consolidated financial statements. The company’s shares will resume trading on June 3, 2019. Benefiting from the acquisition news, Unigroup Guoxin’s stock price hit a limit-up at the opening, with over 1.1 million buy orders.

French security chip giant Linxens is headquartered near Paris, with 4 R&D centers, 7 production bases, and over 3,000 employees worldwide. It also has operational entities in countries such as France, Germany, Singapore, Thailand, and China.

Its main business includes the design and production of micro-connectors for smart security chips, high-quality RFID inlays for electronic document identification, antennas, and ultra-thin flexible LED light strips, closely linked to integrated circuit production and application. Its main customers cover telecommunications, transportation, hospitality, financial services, e-government, and the Internet of Things, with products holding a globally leading position in the smart security chip component industry.

According to Linxens’ official website, its annual sales reach €430 million (approximately $480 million, RMB 3.3 billion). Since its establishment, Linxens has provided over 90 billion connectors to the market, producing approximately 800 million RFID connectors annually, making it the world’s largest producer in the RFID industry.

In its main business areas, Linxens has substantial technological reserves and is continuously developing and improving biometric technologies such as fingerprint recognition, integrating them into smart security chips. Additionally, Linxens’ dynamic password technology helps enhance the security of bank cards and reduce the risk of card fraud.

If this integration proceeds smoothly and Linxens maintains a stable core talent pool and continuous innovation capabilities, it will not only help Unigroup Guoxin enhance technological and product competitiveness, expand the industry chain and international market, and further assist Tsinghua Unigroup in improving its overall chip layout but also benefit the advancement of China’s smart security chip field in terms of self-reliance and control.

Currently, there are no Chinese companies among the major players in the global semiconductor industry. Among the top ten companies by sales in 2018, the United States occupies six spots. Samsung surpassed Intel for the first time to claim the top position.

The Era of Chinese Innovation Has Arrived

According to statistics from the China Semiconductor Industry Association (CSIA), in 2018, China’s integrated circuit industry sales reached RMB 653.2 billion, a year-on-year increase of 20.71%. While China’s integrated circuit industry is developing rapidly, the trade deficit continues to widen. According to China Customs statistics, in 2018, China’s integrated circuit imports amounted to $312.06 billion, a year-on-year increase of 19.8%, while exports were $84.64 billion, a year-on-year increase of 26.6%, resulting in a trade deficit of $227.42 billion.

After the ZTE incident last year, Haitong analyst Jiang Chao urgently called out, “Reject the pain of ZTE, the great era of Chinese innovation is coming.”

The integrated circuit industry is the core of the information technology industry and a strategic, foundational, and leading industry that supports economic and social development and ensures national security. The first phase of the National Integrated Circuit Industry Investment Fund has been fully invested, and the second phase of fundraising is currently underway. Future investment directions will continue to focus on national strategies and emerging industries, with a primary emphasis on supporting the integrated circuit manufacturing sector, while also considering design, packaging and testing, equipment, and materials. This will drive enterprises to enhance production capacity, implement mergers and acquisitions, standardize corporate governance, and develop sustainable self-development capabilities.

As written in Jiang Chao’s report, in the future, we will no longer pursue the quantity of economic growth but the quality of economic growth. We firmly believe that China’s future is full of hope, but the hope lies not in finance and real estate but in the real economy and innovative enterprises.

(Compiled by Wind from Tencent Technology, Xinhua News, NetEase Finance, Southwest Securities, etc.)