News and New Products

More Buyouts Coming

By David Manners -- Electronics Weekly, 10/3/2006

The private equity buyouts of Philips Semiconductors (now NXP) and Freescale Semiconductors are not the end of the buyout activity in the semiconductor industry, according to Dale Ford, director of research at iSuppli.

“We are not necessarily done. There are other major companies which represent major opportunities,” Ford told the Sharp Innovation Forum at Seeon near Munich last week. Ford pointed out that some companies are “in distress,” which could benefit from the management which private equity investors might bring.

Asked by Electronics Weekly which companies he thought would be vulnerable to a buyout, Dale replied: “I don’t think any of the top ten are in play but there are, maybe, two companies below that level which could be opportunities.”

Dale said that the reason why the buyouts are happening now was because of the amount of surplus cash looking for an investment home.

Asked if the buyers of Freescale, which valued the company at $17.6 billion had any chance of making the normally expected 30 percent return in two years which private equity investors target, Ford declined to respond. “We were too close to the deal,” he explained.

Asked why Freescale had been valued at $17.6 billion while NXP was valued at only $10.7 billion, although both companies have similar sized revenues, Ford replied: “We have intimate knowledge of both deals. The profit margins are very different. And NXP is a much more diversified company than Freescale.”

Ford is looking for a robust second half of 2006 in the semiconductor industry based on: “Broad revenue recovery as pricing improves, with tighter capacity for most technology nodes.”

Ford said that the three key criteria which determine the direction of the market -- end market demand, capacity utilization and control of inventories -- are all healthy.

Ford said that the average annual market growth would be 7.4 percent and that two-thirds of the growth up to 2015 would come from China, India, Brazil and China.

Electronics Weekly is the London-based sister publication of Electronic News, part of the EDN Network.