Read our International Electronics Forum 2008 News Roundup
In the eyes of the investor community, the semiconductor industry is an instrument of capital destruction, Ray Bingham, managing partner at financial advisers Atlantic Capital, told the International Electronics Forum 2008 in Dubai this morning.
"So why", asked Bingham rhetorically, "does capital continue to flow?" Answering himself: "It's in the hope you'll produce a hit record and that record will make you wealthy."
Bingham mocked the moves to consolidation in the chip industry. "The consolidation of two companies is like the collision of two garbage trucks", he said, "you get a lot of stuff on the road, but you don't necessarily get any organised pattern that can take you anywhere."
Nonetheless, while ruling out the efficacy of equally-sized IDMs, Bingham didn't discount the value of smaller companies getting together to make larger groupings which would have market clout.
He instanced the STMicro-NXP merger in wireless chips but commented. "NXP say they'll be investing $1.5bn (NXP's proceeds from the merger) in some new application areas despite these private equity vultures sitting on their board."
Whereas he saw difficulties in leveraging R&D costs across several applications, Bingham said: "You can consolidate to leverage other things e.g: brand, capital and channel."
Aart de Geus, CEO of Synopsys, asked how Bingham reconciled the financial industry's self-professed financial sophistication and requirements for growth, with the actual performance of its investments in Freescale and NXP, a question which drew a round of applause from delegates.
"I'm astounded at the assumptions made by the financial institutions buying Freescale", responded Bingham, "great mistakes were made in under-estimating the vulnerability of Freescale to the performance of one large customer, the industry upturn was quite long in the tooth by the time the deal was done, and there was way too much leverage. It was not anybody's finest hour how that transaction was made."
Dr Susumu Kohyama, CEO of Covalent Materials, agreed with Bingham: "Consolidation is a way to final disintegration. It's too late for a fully integrated IDM to be in this business", he said.
See also: Mannerisms, the blog of David Manners. Updated twice daily, it's the distinctive, entertaining, authoritative and never dull commentary on the semiconductor industry, from someone who knows. Sign up for the Mannerisms eNewsletter.