NXP Semiconductors NV Buying Freescale For $11.8 Billion

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NXP Semiconductors and Freescale Semiconductors just announced the largest merger in the semiconductor industry so far in 2015.  The two companies will combine to form a new $40 billion company that will be an industry leader in the automotive and industrial chip markets.  The latest semiconductor merger is the fourth of the year and a sign that the industry is recovering.

Vast operational reach and key clients to boost new corporate entity

NXP Semiconductors is a supplier of numerous key companies such as Apple Inc., Samsung, and China’s second largest phone equipment company, ZTE Corporation.  More specifically, NXP provides solutions for mobile payment systems such as Apple Pay, an area of growth that that the company sees will continue over the long term.  Freescale Semiconductors is a key provider to Amazon.com Inc.’s Kindle lineup.

Just looking at each company’s 2014 results, NXP earned full year revenue of $5.7 billion and Freescale saw full year revenues of $4.6 billion.  Each company has operations in 25 countries.  Under the new deal, Freescale shareholders will get $6.25 and 0.3521 of NXP shares for every 1 Freescale share they hold.  Freescale will hold 32% of the newly formed corporation.

Semiconductor industry outlook looks positive

So far in 2015, we have seen Avago Technologies purchase Emulex for $600 million, MaxLinear entered into an agreement to purchase Entropic Communications for $287 million and lastly, Lattice Semiconductor bought Silicon Image for $600 million earlier in January.  The pick up in mergers and acquisitions shows that the industry is gaining confidence back after a long road to recovery from the massive decline in the industry since 2008.  Information technology research company, Gartner, forecasts that semiconductor sales around the world will rise 5.4% in 2015 year over year, to a total of $358 billion. Gartner says the majority of the sales growth will come from industrial and wireless chip demand, two areas of huge dominance for the new NXP-Freescale company.

Overall, the NXP and Freescale merger represents a great opportunity for the new company to gain a nice chunk market share globally.  With Apple, Samsung, and Amazon as already existing clients, the new company is already well positioned in the wireless chip market and established dominance in the auto and industrial chip markets will further provide growth and upside to the new company.

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