93% of Semiconductor Leaders Expect Rapid M&A Pace to Continue

KPMG survey finds IP acquisition and pursuit of revenue growth driving M&A

December 10, 2015 -- Semiconductor industry business leaders predict that the number of mergers and acquisitions in 2016 will match or exceed 2015, according to this year’s Global Semiconductor Industry Survey from KPMG LLP, the U.S. audit, tax and advisory firm.

KPMG surveyed 163 semiconductor industry business leaders in companies based around the world on their outlook for M&A, revenue, spending, employment, growth, and technology trends.

The majority (59 percent) of semiconductor leaders expect the rate of M&A deals to increase in 2016, while another 34 percent expect it to match this year’s pace. The combined findings are higher than the last year’s 83 percent who predicted an increase or same rate in 2015.

“M&A has become a greater priority as semiconductor companies pursue a strategy to more quickly obtain the technology breakthroughs and revenue they need to grow their businesses,” said Gary Matuszak, Global Chair of KPMG’s Technology, Media and Telecommunications practice. “The market pressure on semiconductor pricing is one of the factors impacting revenue and making M&A more attractive.”

Intellectual property acquisition and revenue growth were most often cited as the key factors driving the high rate of M&A activity. These findings align with the fact that semiconductor business leaders said the three biggest issues in the next three years are increasing R&D costs (45 percent), technology breakthroughs (41 percent) and average sale price erosion (40 percent). In addition, almost half (45 percent) of them said the Americas will experience the most industry consolidation, followed by Asia Pacific (36 percent) and Europe (18 percent).

As semiconductor companies execute M&A as part of their revenue growth strategy, nearly three-fourths (71 percent) of the business leaders said their company revenue will increase in the next fiscal year, compared to 81 percent in last year’s survey. Looking at company revenue growth three years out, about 8 out of 10, similar to last year, expect an increase.

“With the short-term outlook not as strong as a year ago, it becomes more important for semiconductor companies to maximize their strongest areas for growth,” said Lincoln Clark, KPMG Global Semiconductor Industry Leader. “And a significant majority of the semiconductor business leaders surveyed believe that microprocessors, networking and wireless will be keys to growth in 2016.”

In fact, six out of 10 semiconductor business leaders expect that microprocessors will be the sector with the highest growth opportunities, followed by sensors and memory. The end markets with the highest growth opportunities are forecast to be networking and communications (61 percent), computing (52 percent), and automotive (52 percent). The most important application markets for revenue are predicted to be wireless handsets and other mobile devices (60 percent), automotive sensors (54 percent), wireline communications (49 percent), and automotive infotainment (48 percent). China is viewed as the most important region for their company’s revenue (49 percent) and headcount (77 percent) growth next year, followed by the U.S.

Survey respondents said investment growth will not be as strong in 2016. Nearly two-thirds (62 percent) anticipate their company’s research and development spending to increase in the next fiscal year, and another 33 percent expect it to remain the same, compared to 83 percent expecting an increase and 14 percent the same level in the 2014 survey.

KPMG Global Semiconductor Industry Survey
KPMG’s study, conducted in September, surveyed 163 semiconductor industry business leaders, primarily senior level executives, including device, foundry and fabless manufacturers. Sixty-seven percent of the companies represented in the survey have annual revenue of $1 billion or more.

About KPMG LLP

KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 155,000 professionals, including more than 8,600 partners, in 155 countries.