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Cypress plans Spansion takeover for $4B

02 Dec 2014  | Rick Merritt

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The chip industry is bound to witness yet another consolidation. Cypress Semiconductor Corp. seeks to buy Spansion in an all-stock deal valued at $4 billion. The deal, once signed, would create an expanded embedded chip vendor with $2 billion in annual revenues, half in mainly NOR flash and SRAM memory with the rest split between microcontrollers and analogue parts.

T.J. Rodgers will remain as chief executive of the merged company under the Cypress name. Although Cypress is the slightly smaller of the two firms, it has had consistent profits while Spansion has been crawling its way into the black, in part due to the decline of its core NOR flash business.

The combined companies will not have enough heft to break into the world's top 20 chip vendors which these days requires nearly twice as much in revenues. However, they claim they will be the world's fourth or fifth largest supplier of chips to car makers. They will rank eighth in automotive microcontrollers and ninth in the overall MCU market.

In 2013 annual MCU revenues, Cypress ranked 12th and Spansion ranked 10th, according to Tom Hackenberg, a principal analyst at IHS Global Inc. "Current estimates would place the proposed merged company with three quarters of a billion in annual MCU revenues solidly in front of currently ranked Samsung in ninth place, but behind Atmel by just less than 200 million annually," he said.

Cypress has long pursued a position in microcontrollers with its novel PSoC family. Spansion bought its way into the market in April 2013 when it acquired Fujitsu's microcontroller and analogue divisions which claimed to be the second largest supplier of MCUs to Japan's car makers.

The two companies believe within three years their combination can shed $135 million in annual costs. However, they have not said how much of the savings will come from layoffs. The deal is expected to close before the end June with regulatory approvals in China being perhaps its greatest hurdle.

The proposed merger comes at a time of consolidation when many chip vendors are bulking up to have the scale to compete more effectively. A year ago, Avago and LSI merged to create a $5 billion company. Other combinations include the merger of Mediatek and MStar in Taiwan and Micron's purchase of Elpida to create a memory giant.

"The story is simple," said Augusto de Olivera, chief technology officer at Cypress and a key architect of the deal under Rodgers:

  • Both companies have been looking around with active M&A programmes for a while. We acquired Ramtron and have been looking for bigger deals for the past year when we came across Spansion which was also actively looking...This [deal] reinforces what we see as a wave of consolidation. Customers like companies with broader portfolios, and it's what is happening all around us.

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