With the suspense of the "double-pass" M & A drama, 2017 is coming to an end. This year's mergers and acquisitions of the semiconductor industry did not continue the turmoil of the previous two years. The entire market has calmed down. There are only two orders for transactions worth more than 10 billion yuan: Intel’s purchase of the Mobileye and Toshiba acquisitions. Then, what are the prospects and trends of global mergers and acquisitions in 2018? Mentor (ASiemensBusiness) CEO Walden C. Rhines (Wally) explained his forecast for next year's M&A trends in the semiconductor market. In his view, specialized mergers and acquisitions in the segmented areas will be the theme for next year. The following is an excerpt of his dialogue with the reporter of Micronet.
The pace of mergers and acquisitions in the semiconductor industry this year has slowed down compared to the previous two years, and overseas mergers and acquisitions by Chinese semiconductor companies have also been grounded. How do you think the next semiconductor industry mergers and acquisitions?
So far, 2017 seems to be a year in which the mergers and acquisitions in the semiconductor industry have been significantly reduced. The average market value of corporate mergers and acquisitions in the semiconductor industry in 2015 and 2016 was close to US$100 billion. In this context, Toshiba’s M&A announcements are extremely inconspicuous. However, the recent Broadcom-sponsored merger proposal and Marvell/Cavium merger have allowed us to revisit the long-lost handwriting.
Looking closely at the history of semiconductor M&A in recent years, it is not difficult to find that it is not the companies that lead in M&A in terms of total revenue and economies of scale, but specific segments in the semiconductor market, such as automobiles, wireless handheld devices, and networks. , Companies with higher market share and profitability. On the other hand, the abundant funds brought about by the loose monetary policy of the world has also played a role in boosting the economy. This specialization trend is likely to continue because it can increase the profitability of leading specialized companies such as TI, Broadcom, and NXP.
However, with the exception of memory companies, it is unlikely that the semiconductor industry will continue to integrate as a whole, because there is no correlation between the total revenue and operating profit margins of semiconductor companies.
After a certain period of development, due to the slowdown in growth, market stability and other reasons, companies may adopt radical approaches to corporate mergers and acquisitions to pursue development. For them, how can we balance the radicalization and stability on the road to development? In this regard, how does Mentor plan for the future development?
Unlike other EDA companies, Mentor relied on internal R&D to create its own products in its 36-year history. Although we have also had some mergers and acquisitions, the products we acquired accounted for only a small percentage of our revenue. Calibre, TestKompress, CellAwareTest and many more successful products were conceived and developed within Mentor, and most of the creators are still working at Mentor.
In the future, our merger with Siemens will bring us new opportunities and accelerate the pace of development through mergers and acquisitions. Before, we were only limited by the lack of sufficient financial resources to compete for large-scale mergers and acquisitions. Of course, Mentor's DNA is still centered on independent development from concept to product life cycle. It will continue to continue, which is beyond doubt. However, I expect M&A will play an increasingly important role in our future development.
Mergers and acquisitions may face a series of problems, such as corporate culture and technology integration. How does Mentor solve these problems?
Cultural integration has almost always been one of the major challenges associated with mergers and acquisitions. The two companies should have similar corporate ethics, respect for individuals, science and technology awareness, and be good at dealing with transnational culture. These are all very important. Fortunately, Mentor's basic operating principles are highly consistent with Siemens. In the future, we will focus our M&A on the compatibility of the above principles. In some cases, we will abandon M&A opportunities if the matching degree is not high.
After Siemens' acquisition of Mentor, what complementation will the two parties achieve in terms of architecture? What specific adjustments will be made? What plans does Siemens have for Mentor's IC business?
Siemens' acquisition of Mentor was completed on March 30, 2017. We have made great efforts to become familiar with each other and understand each other's business. One of the reasons for the success of our mergers and acquisitions is that Siemens PLM has extensive experience in mergers and acquisitions, and it will consciously reduce changes to acquired companies. Another reason is that unlike most semiconductor-related acquisitions (except Softbank/ARM's acquisitions), the starting point for Siemens' acquisition of Mentor is "income synergy" rather than "cost synergy," which means accelerating growth rather than reducing costs.
The main problem that Mentor needs to solve is how to use the increased investment of Siemens to accelerate the development of Mentor. Siemens clearly stated that the IC design business is a key part of Mentor and will become one of the key components of Siemens PLM in the future. Siemens plans to expand Mentor’s revenue and innovation in IC design by increasing investment. As you mentioned, Siemens also proves that corporate mergers and acquisitions can accelerate our development and capabilities in the field of IC design.
With more and more complete system manufacturers beginning to enter the field of IC design, EDA company will usher in what opportunities?
As I emphasized in our speech more than a decade ago, the application of EDA technology developed specifically for IC and PCB design in complete system design will bring significant development opportunities to the EDA industry. Electronic devices are becoming an increasingly important focus of competition in the automotive, aircraft, train and industrial equipment sectors. The complexity of electronic equipment in system design is increasing, and it is bound to require more and more EDA technology. Over the next few years, EDA will increasingly focus on system design and develop tools that automatically understand other system and machine design information.
Solido is another company in the IC field that Siemens acquired after Mentor. This is a company founded in 2005 to supply global semiconductor companies with variability-perceptible design and feature extraction software. At present, more than 40 large companies have used Solido's machine learning products in their production, enabling them to design, validate and manufacture more competitive products than ever before. Terms of the deal have not been disclosed. Solido has been working closely with Mentor for the past five years. Ravi Subramanian, Mentor’s vice president and general manager of IC verification solutions, gave some explanations on the acquisition.
Siemens recently acquired Solido, what is the intention of this acquisition and what can this business bring to Siemens and Mentor?
Mentor, aSiemensBusiness completed the acquisition of SolidoDesignAutomation on December 1, 2017. Solido is now part of Mentor's analog/mixed-signal (AMS) verification business unit and is responsible for providing world-leading machine learning-based mutation-aware design and feature extraction software.
There is a huge synergy between Solido and Mentor. From a business perspective, Mentor will use its channels to deploy Solido's products to a wider global customer base and provide support to a larger user community. From a product perspective, there is a direct synergy between Solidity's VariationDesigner and MLCharacterizationSuite and Mentor's Analog FastSPICE (AFS), Eldo, Analog Feature Extraction Environment (ACE) and Kronos library feature extraction tools. Finally, from a technical point of view, Mentor will adopt Solido's machine learning technology and expertise in its own product portfolio and gradually in the broader Siemsns product portfolio, as well as its expertise in user experience.
One of Solido's specialty is machine learning. What influence do you think machine learning or artificial intelligence will have on EDA? In this regard, what is the layout of Mentor? What are the future trends of EDA?
Machine learning is bringing disruptive product solutions to the EDA market. It improves tool performance by several orders of magnitude while maintaining the accuracy of results. Solido's machine learning technology and expertise have been developed and accumulated over 12 years, which is the main reason for this acquisition. Solido has a portfolio of machine learning capabilities for engineering applications, and is known for its performance enhancement, accuracy of results, and scalability for large-scale EDA issues. With these machine learning core technologies, Solido has overturned the variability-aware design and feature extraction market, and will play a boosting role in the broader Mentor and Siemens markets.
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