IoT, rising chip costs accelerate urge to merge: Dialog to acquire Atmel for $4.6 billion

After the acquisitions of Freescale, Broadcom, Altera, and others earlier in 2015, the “year of the buy” continues with Dialog Semiconductor (www.dialog-semiconductor.com) announcing its intentions to acquire vendor Atmel (www.atmel.com) for a reported $4.6 billion.

In a deal announced on Sunday, European chipmaker Dialog revealed it would buy U.S.-based Atmel Corporation in an effort to bolster its product portfolio in pursuit of the and () markets. In addition to , Atmel also develops encryption and touchscreen technology that will complement Dialog’s power management suite to broaden the reach of the combined company. Currently, only a five percent product overlap exists between the two entities, says Jalal Bagherli, CEO of Dialog.

“The rationale for our acquisition is to build a complementary business to power savings and power management and it gives us a better platform for the Internet of Things,” he says.

The deal, which is expected to close in the first quarter of next year, has pushed the 2015 M&A pricetag for semiconductor companies to roughly $80 billion, the most in a single fiscal cycle since 2000.

Contributing factors to semicons’ urge to merge

While the background of each buy is unique, there are two common threads prompting the semiconductor industry’s current ‘urge to merge.’ The first is the rising cost of research, development, and manufacturing associated with producing modern chips, as semiconductor vendors attempt to prolong Moore’s Law with advanced designs and process technology that have become increasingly expensive. Where in the past “you could get a viable chip done with $10 million to $30 million,” says Gartner analyst Mark Hung (www.gartner.com/technology), today it can cost on the order of $100 million to develop a leading-edge chip. As a result, only the largest semicons with the deepest pockets can afford to stay at the forefront of innovation in transistors, contributing to the M&A trend.

The second thread is the advent of the IoT, and companies’ fears of getting left behind. As the IoT represents a culmination of various technologies and disciplines ranging from connectivity to low power to sensing, semiconductor companies are electing to acquire proficiency in new areas rather than develop it natively to remain on top of the market. As Bagherli stated, the goal of Dialog’s acquisition of Atmel is to create “a complementary business to power savings and power management,” which will no doubt be used in conjunction when demonstrating capabilities for the IoT.

While the word “acquisition” smarts for those working in the embedded industry because of the inevitable layoffs that follow, we may not be done yet. (www.maximintegrated.com) and Xilinx (www.xilinx.com) are just two of the names that have popped up as possible acquisition targets as semiconductor companies retool for the IoT and new approaches to Moore’s Law.