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Making Sense of the Changing Electronics Supply Chain

Jan. 20, 2016
Distributors can help electronic component buyers navigate the changing industry landscape caused by 2015’s record semiconductor M&A activity.

The semiconductor industry saw unprecedented activity in mergers and acquisitions in 2015. Some deals are still subject to completion, but the industry has experienced some quite remarkable and unforeseen dynamics, with the total value of completed and planned mergers and acquisitions across the semiconductor industry worth more than $100 billion. According to industry researcher IC Insights, the total value of acquisitions in the first half of 2015 was more than six times the annual average compared to the past five-and-a-half years (see the figure). No doubt China has been partly responsible for all this activity. Its fast-growing electronics industry has required the reduction of imports from foreign companies—this has meant that considerable purchasing power has been deployed from various Chinese companies and investment groups. This level of activity in the market is likely to have an important impact on electronic component supply chains going forward.

Key Acquisitions

The list of industry mergers and acquisitions accelerated throughout the year. First, there was the NXP and Freescale merger, leading to the sale of NXP’s RF group to Jianguang Asset Management Co. in China. Then there were some headline-making multibillion-dollar deals, including Intel buying Altera, Avago acquiring Broadcom, and On Semi acquiring Fairchild. One of the more recent announcements was Microsemi putting in a competitive bid for PMC-Sierra, in addition to its earlier acquisition this year of Vitesse Semiconductor to bolster its product and technology solutions for the Internet of Things (IoT) market. In addition, there also appears to be some form of bidding war going on for Atmel; certainly Dialog is involved in this, but it has been reported that at least one other major competitor is also putting its name into the frame. These are just some of the largest deals to date.

Why Did They Merge?

In general, many semiconductor vendors are experiencing slower than ideal growth in existing markets and are taking the option to acquire others to expand their product portfolios—especially those that can give them the competitive advantages and greater opportunities in designs that target the IoT. Also, in an increasingly global market, semiconductor vendors are looking to develop higher revenue streams and build scale to meet the rising product development and advanced R&D costs.

All these, of course, can mean nervous times ahead, especially for those involved in a particular deal—and their customers. More often than not, customer concerns and how the deal may affect the supply chain could well be drowned out in the noise generated by the deal, including the worries of shareholders as well as share prices and board-member votes.

Effect on the Supply Chain

A common refrain about industry acquisitions is: How will it affect my suppy chain? It clearly depends on the supply chain in question, but in the ideal case nothing much of importance would change: products lines would meld together seamlessly and business would continue as normal for everyone, except for a change to the brand name. However, the semiconductor industry is no more protected from both chaotic and probability-driven dynamics than any other field of commercial endeavour. Inevitably, there will be changes to the supply chain with each merger or acquisition; that could mean that some products will go end-of-line (EOL) and shortly become unavailable in the worst case, or perhaps a change in part numbers in the least case. Or there could be changes in the manufacturing process that can result in serious disruptions to lead times and availability. There is also a high probability of price instability for certain components.

Easing the Transition

One path that can help OEMs and makers navigate through these uncertain times is partnering with a major broad-line distributor—ideally one that has global reach and value-added services. When you need parts delivered quickly and reliably, large global distributors are exceptionally well placed to play a key role in easing the pain of any transition and limit disruptions. Distributors offer a broad range of services designed to assist customers through their day-to-day operations.

Supply-chain programs are an excellent example of how distributors can assist customers during these troubled times; many companies offer a variety of services to help customers manage their supply chains. Another example is EOL notifications: email notifications point customers to specific details on the distributor website, including information such as available documentation and available substitute products.

In addition, large distributors, especially, offer a variety of design tools that can help customers in EOL situations, when new products must be designed-in.

Overall, distributors that have a broad range of services and tools are exceptionally well positioned to help customers, not only through troubled times, but every day as well.

Chris Beeson is executive vice president of sales and supplier development at Thief River Falls, Minnesota-based Digi-Key Corp. He can be reached at [email protected].

About the Author

Chris Beeson | Executive Vice President of Sales and Supplier Development

Chris Beeson is executive vice president of sales and supplier development at Thief River Falls, Minnesota-based Digi-Key Corp. He can be reached at [email protected].

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