http://www.bdlive.co.za/world/americas/2016/03/04/chip-makers-set...

http://www.bdlive.co.za/world/ameri...acquisitions-as-internet-of-things-gains-pace

Chip makers set for acquisitions as internet of things gains pace


SAN FRANCISCO — Chip makers will continue gobbling one another up this year, and deep-pocketed giants, such as Qualcomm and Samsung Electronics, are under pressure to enter the fray.
While semiconductor companies spent a record $113bn on acquisitions last year, the biggest players mostly stayed on the sidelines — with the exception of Intel, which bought Altera for $16bn. Now Qualcomm, having fended off calls to split the company in two, says it has the cash to make deals.
While Samsung prefers to build rather than buy, analysts say its stated interest in the so-called internet of things means it will probably have to go shopping.
Chip makers have three good reasons to keep making deals. Scale has become increasingly important in an industry grappling with rising production costs and intensifying competition.  It is also a target-rich environment, with more than 500 public companies generating less than $1bn in sales. And, despite last year’s acquisition frenzy, the biggest 20 chip makers are still sitting on more than $130bn in cash.
"There’ll be another wave of consolidation," said Topeka Capital Markets analyst Suji De Silva.
"These guys have the cash, the cash flow, and they’re willing to lever up."
Qualcomm and Samsung face competition from China, which has vowed to build a domestic chip industry to reduce its reliance on imports. While some efforts to acquire foreign firms have been rebuffed on concern that they will not pass US regulatory muster, China is expected to keep on trying to use some of the more than $100bn it has set aside for acquisitions.
Analysts expect Qualcomm to be the most aggressive deal-maker. With a cash hoard of $30bn, the world’s biggest maker of cellphone processors and modems wants to expand into server processors, chips for cars and the internet of things, technology that connects light bulbs, factory equipment and more to the web.
"As we see things we want we can go after them," C EO Steve Mollenkopf said. "We purposefully have the balance sheet to enable us to makes moves," he said.
Potential targets include Cavium, Applied Micro Circuits and Advanced Micro Devices — companies that would help jump-start Qualcomm’s push into servers.
None would make much of a dent in its cash pile. The biggest of the three, Cavium, has a market capitalisation of about $3.5bn.
American Money Management fund manager Mike Green wants Qualcomm to buy Skyworks Solutions, which makes chips used by smartphone makers such as Apple.
As well as winning more business from Apple, Qualcomm "would also become the dominant internet of things stock, and that’s where the big money is in the next three to 10 years", Mr Green said.
Samsung Electronics is a harder read. While the South Korean company has the biggest cash balance at more than $50bn, it has not made a major deal in 10 years.
But with its cellphone unit losing ground to Apple and Chinese upstarts, Samsung has become increasingly reliant on its chip division for profit. SanDisk might have made a good fit — Samsung looked at the flash memory giant in 2009 — but Western Digital agreed to purchase it last year for about $16bn. Like Qualcomm, Samsung sees the internet of things as a promising business.
The company has a large team looking at acquisitions, according to Mark Newman, a Sanford C Bernstein analyst who previously worked in Samsung’s corporate development department. Samsung had already bought smaller companies in the medical equipment and display technology areas, he said, and was now more likely to make a multi billion-dollar purchase.

I'm sure Qualcomm could spare a billion to buy Xped's tech, given they're sitting on $30 billion in cash reserves.