Consolidation always strikes me as a miserable business and, according to that insightful PriceWaterhouseCoopers book, Five Frogs On A Log, destroys shareholder value more often than increasing it, so I was a bit surprised to find three semiconductor industry CEOs saying, last week, that the semiconductor industry needs more consolidation.
"I think the semiconductor industry needs to go through a time of consolidation", said John Daane, CEO of Altera, "consolidation around end products. Like there's two companies in the x86 business; in graphics chips there's three companies; in programmable logic there's Xilinx and Altera. The semiconductor industry has resisted consolidation for too long. Consolidation would make it more profitable."
The other chip company CEO I heard last week saying that consolidation was a good idea, was Ted Tewksbury, CEO of IDT. Asked why?
Secondly, companies will coalesce around systems solutions with various companies providing different aspects of the solution getting together.
A third CEO, Derek Lidow, CEO of iSuppli, advised bosses that the way out from slow growth and thin profits was to: 'Build a scalable acquisition process that would allow a semiconductor company to grow by buying other companies or selected parts of companies'.
"Developing such a process would allow a company to achieve unprecedented scale and vast wealth," said Lidow, "with semiconductor processing becoming increasingly commoditised, such an endeavor is becoming practical."
When did consolidation ever work in the semiconductor industry? SGS-Ates and Thomson Semiconducteurs is the only success people cite, and then they say it only succeeded because of the personality of Pasquale Pistorio.
If you look at the most unprofitable area in the industry, NAND flash, it's down to five players which between them have 96 per cent of the market. The top two have 70 per cent share, and the top three have 83 per cent share.
Consolidation helps profits? That's one for the birds.
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