Nvidia, AMD and Intel are leading an unprecedented $100 billion wave of acquisitions as the cloud and AI change the chip market: 'The biggest year for consolidation ever;

  • Big mergers, once rare in the semiconductor industry, are accelerating in the semiconductor market where major chip makers, led by Nvidia, AMD and Intel, have gone on a buying spree over the past five years.
  • The M&A wave seemed to reach a peak this year when semiconductor giants have announced major acquisition deals worth more than $100 billion.
  • Nvidia has been the most aggressive acquirer, gobbling up Mellanox for $7 billion, and announcing a bid for Arm for $40 billion. AMD, which is not known for an aggressive M&A strategy, also surprised the industry with a $35 billion bid for Xilinx. 
  • While Intel's recent acquisitions have been low-key compared to the Nvidia and AMD deals, analysts say the chip giant actually kicked off the M&A wave with big acquisitions over the last five years.
  • "You start seeing a lot more companies trying to get bigger and the only way they do that is through consolidation because that's the only way they can continue growing their top line revenue," said IDC analyst Mario Morales.

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Big merger deals, once rare in the semiconductor industry, have been accelerating as chip giants jockey for position in a rapidly shifting market. 

And the buying spree has picked up steam in the last few months with back-to-back deals worth $100 billion in total.

Over the past few years, major chip makers, led by Nvidia, AMD and Intel, have been on a buying spree, gobbling up or making bold, even surprising, bids for companies, including startups and longtime industry players.  

"The semiconductor industry has been on fire this year," Charles Wuischpard, CEO of chip startup Ayar Labs, which just raised $35 million in venture capital funding, told Business Insider. "Lots of transactions." 

Bernstein Research analyst Stacy Rasgon said the M&A wave started around 2014-2015. But "this would be the biggest year for consolidation," he told Business Insider.

The big chip M&A deals over the past seven months include:

  • In April, Nvidia acquired networking chip and equipment maker Mellanox for $7 billion.
  • In July, Analog Devices, the maker of analog chips, announced it was buying rival Maxim for $21 billion.
  • In September, Nvidia said it had signed a $40 billion deal to buy chip design powerhouse Arm from Softbank
  • In October, AMD unveiled a $35 billion deal to acquire programmable chipmaker Xilinx.
  • Later that same month, Marvell announced a deal to buy networking chip company Inphi for $10.6 billion.

The M&A wave, together with a rise of semiconductor startups, highlights the growing need for new and more powerful processors for new technologies, led by the cloud and AI.

The rash of acquisitions also underline the chip industry's rapid growth over the past decade, from a market worth less than $300 billion to one now worth more than $400 billion, said IDC analyst Mario Morales.

"You're getting to a point where it's a very large industry, and the growth is beginning to mature," he told Business Insider. "You start seeing a lot more companies trying to get bigger and the only way they do that is through consolidation because that's the only way they can continue growing their top line revenue."

Gerard Williams, CEO and cofounder of chip design startup Nuvia, and an Apple veteran who helped design the iPhone processor, said those big M&A moves also highlight the shift in the chip market that threatens Intel, the world's biggest chip company.

AMD's "acquisition of Xilinx represents a huge bet on the future of their data center business and underscores the M&A frenzy taking hold in the chip sector right now," he told Business Insider. "Nvidia's bid to buy ARM is an even bolder move to re-shape the silicon landscape and further displace Intel's core business."

Nvidia is the most aggressive acquirer

The most aggressive acquirer, by far, has been Nvidia. The graphics chip maker which has emerged as a major player in the market for data center chips and AI technologies that require more powerful processors for handling massive amounts of data. 

Morales said Nvidia's bid for Mellanox, which is expected to boost its position in the data center market, was actually a "pivotal" event in this year's M&A wave. 

The deal surprised some industry experts after it easily got regulatory approval, especially in China. "People were very concerned that China was not going to approve that deal, or that it would take longer," Morales said.

In fact, Nvidia's success in gobbling up Mellanox "really started opening the floodgates" to bigger acquisitions, Morales said. "Once they got that done, you could see that a lot of the other vendors that were already looking at acquisitions began to move forward more aggressively — including Nvidia."

Two months after buying Mellanox, Nvidia stunned the tech world by announcing a $40 billion deal to buy chip design powerhouse Arm from Softbank. Arm's chip designs are widely used in the smaartphone and tablet market and are expected to be adopted in other growing markets, including data centers. 

Morales called the move an "opportunistic" buy since Softbank was facing a major cash crunch that forced the Japanese conglomerate to sell a huge chunk of its assets.

The Nvidia-Arm deal still has to clear regulatory hurdles, especially in China. But Nvidia CEO Jensen Huang on Wednesday affirmed that the acquisition would transform Nvidia into an even more dominant player in a growing chip market.

"With our pending acquisition of Arm…we will create the computing company for the age of AI, with computing extending from the cloud to trillions of devices," he told analysts on the company's earnings call.

Even AMD, which is not known for making aggressive acquisitions — its last big buy was in 2006 when it bought chip maker ATI for $5.4 billion — joined the fray. Last month, the chip giant also surprised the industry with a $35 billion bid for Xilinx, the programmable chipmaker.

Michelle Johnston, Intel's executive vice president for marketing and communications, said Nvidia's Arm deal and AMD's bid for Xilinx reflect "the reality that as data grows exponentially, so does the demand for computing performance to process it."

The deal is fueled by rising valuations for chip companies

Morales said rising chip valuations have definitely helped semiconductor companies in pursuing deals. Despite the pandemic, the Philadelphia Semiconductor Index, which tracks chip stocks, has climbed more than 35% year to date. 

AMD, which is gaining share in the server chip market against Intel, has seen its stock rise nearly 80% this year, while Nvidia shares have doubled. 

Earlier this year, Nvidia actually overtook Intel as the most valuable US semiconductor company based on market capitalization. Nvidia is now worth more than $332 billion, outpacing Intel which has a market cap of $186 billion and AMD, which is worth $102 billion.

Intel has struggled with production missteps and stiffer competition from AMD in the data center chip market. But the tech giant has also embarked on an aggressive M&A strategy to adapt to the evolving semiconductor market.

"We have been on a multi-year portfolio transformation making investments both organically and inorganically that position Intel to capitalize on a range of high-growth opportunities," Johnston, the Intel executive vice president, told Business Insider.

Compared to the AMD and Nvidia deals, Intel has made only several low key acquisitions this year, including a $900 million deal for mobility app Moovit.

But Intel actually has been leading the M&A wave over the last few years with a series of acquisitions, including its acquisition of Altera, the Xilinx rival, which it bought for $17 billion in 2015. Two years later, Intel spent $15 billion to acquire car-tech company Mobileye. Last year, Intel acquired AI chip company Habana for $2 billion.

"Intel was probably one of the ones that was very aggressive over the past five years," Morales said. "They bought over a dozen companies to make sure that they protect their moat, make sure that they can continue to grow on a top level basis, and also make sure that they can diversify, and not just be in PCs, but also in areas like IoT, and automotive and what we're seeing today in terms of the the core infrastructure area."

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