Over the past year, the semiconductor industry has been shaken up with a barrage of corporate mergers and acquisitions. Many of these deals wound up costing tens of billions of dollars, with a combined purchasing total of $77.6 billion having been spent between the companies of SoftBank, Avago, and Analog Devices merging or acquiring smaller entities. Since electrical engineers throughout the world largely rely on the semiconductor companies to produce parts for their product designs, these high-profile mergers and acquisitions could have negative ramifications on the industry’s pricing, purchasing options, and innovation growth.
Should we continue to see groundbreaking mergers like the ones mentioned above, one of the first notable changes that we’d notice in the semiconductor industry would be a surge in pricing for products and accessories. Since more mergers would lead to a decline in the overall number of companies in the semiconductor industry, this obviously translates to a decline in competition. As a result, the need to incentivize consumers with competitive pricing is mitigated, along with the significance to the roles of purchasing managers. Bill of material (BOM) costs could experience a downward trend on profit margins as a result, however this could be countered through optimizing new design formats.
Following up on the previous points I made, another result that could arise from continuous high-profile mergers in the semiconductor market is a reduction in the overall number of purchasing options for parts and accessories. Since fewer manufacturers would be available, this obviously leads to fewer choices for consumers, and less diversity. This could lead to potential challenges for product designers, leading them to form performance compromises and forcibly incorporate additional accessories in their designs, which would in turn drive up costs on the consumer’s end. With the lack of competition in the industry field, these mergers could also cause components and accessories of the remaining companies to become more obsolete, since the need for quality optimization decreases, something that ultimately hurts the consumer more than the vendor.
One of the short-term effects we could see would involve engineers that primarily purchased parts from companies that wound up getting bought out. The lack or omission of options could very much cause changes in design and availability. When companies that purchased or merged with smaller semiconductor manufacturers evaluate the product lines they inherited, it’s only logical for these corporate entities to determine that certain accessories or components are unnecessary, and don’t fit with their business model.
Three industries that could be affected the most by these negative ramifications are the medical, space, and defense industries. Low and medium volume products in nature could wind up being affected the most as well, since these are the accessories and components that purchasing companies are likely to omit from making available. New and pre-existing designs created by consumers could wind up getting part reductions, substitutions, and alterations, which in turn can drive up costs. Companies can also lose their drive to innovate, due to the lack of competition the industry contains, and the need to stay on top of corporate counterparts.
Filed Under: M2M (machine to machine)