“The integration of the semiconductor industry, the driving force is not economies of scale.”
What is the factors that leads semiconductor industry to integration?
2016.06.13 [Walden Rhines (Chairman & CEO, Mentor Graphics), EE Times]
Semiconductor industry put their foot in unknown area by large mergers.
It indicates that it’s not about rate of growth can be higher and large investment improve ROI, it’s about the only way to overcome decrease of semiconductor industry economic scale.
In general, the reason why integration of large mergers is to obtain effectiveness from. It’s most important factor making economy of scale.
Now, 30% of the total semiconductor industry is consisted of fabless company. Economies of scale created by merger of fabless is very limited. For example, two fabless companies are in merger to one, profit is still as same as previous profit from the two fabless companies.
The manufacturing cost is very small part of pros in merger due to the increase of product quantity. The main advantage through the merger contained not only synergy effect but many different kind of economy of scale.
Like cost-saving and benefit of economy of scale in semiconductor, there seems to be correlation.
According to the data from semiconductor companies in the top 130 for 5 years, there is no correlation between company size and profitability.
It doesn’t change this conclusion compared to the most profitable company in semiconductor industry. In 2014, Intel, the global giant company significantly performed sales of $56 billion, 28% of operating profit
2014 high-margin semiconductor industry Source: Mentor Graphics