In part 1 of this article we considered some
of the given reasons for the ARM bid and whether the new ownership would be
positive, neutral or negative for ARM given Softbank’s record at Sprint. Here we look at recent M&A activity in
semiconductors and consider some salient points concerning SoftBank’s
charismatic Chairman Masoyoshi Son.
For comparison - A String of Recent Mergers for Semiconductor Companies
SoftBank's acquisition of ARM also continues the on-going
consolidation in the semiconductor business.
Although SoftBank is not a player in semiconductors and in that sense is
not contributing to the further consolidation of the industry into just a few
houses, investment bankers representing ARM would surely be familiar with
current valuations and the desire to match smaller players to larger
buyers. Bigger seems to be better when
it comes to silicon companies.
In March 2015, NXP Semiconductor agreed to acquire Freescale
in a stock swap value at $16.7 billion (including Freescale's debt). The deal created the largest supplier of
semiconductors for the automotive industry and the No.1 supplier of general
microcontrollers (MCUs).
In May 2015, Avago Technologies agreed to acquire Broadcom
in a deal valued at $37 billion ($17 billion in cash and $20 billion in Avago
shares). This merger created the third
largest global semiconductor company with strong presence in wired
infrastructure, wireless infrastructure, enterprise storage, ASICs, PHYs,
Ethernet switching silicon and set-top box silicon. The new company has an annual revenue of
approximately $15 billion.
In January 2016, Intel completed its acquisition of Altera,
a provider of field-programmable gate array (FPGA) technology, in a deal that
was valued at $16.7 billion when it was first announced six months
earlier. Altera now operate as a new
Intel business unit called the Programmable Solutions Group (PSG). Its portfolio includes its Stratix series
FPGAs with embedded memory, digital signal processing (DSP) blocks, high-speed
transceivers, and high-speed I/O pins. Altera's Arria system-on-chip solutions
integrate an ARM-based hard processor and memory interfaces with the FPGA
fabric using a high-bandwidth interconnect. These devices include additional
hard logic such as PCI Express Gen2, multiport memory controllers, error
correction code (ECC), memory protection and high-speed serial transceivers.
In November 2015, Microsemi Corporation consolidated its
offer to acquire PMC Sierra for $9.22 in cash and 0.0771 of a share of
Microsemi common stock, representing an enterprise value of $2.5 billion.
In June 2016, Cavium agreed to acquire QLogic for $1.36
billion in stock. QLogic, which is based in Aliso Viejo, California, supplies
Fibre Channel Adapters, converged network adapter for the Fibre Channel over
Ethernet (FCoE) market, Ethernet adapters, iSCSI adapters, and ASICs. The company has design wins for next
generation Ethernet (10/25/50/100Gb) and Fibre Channel (16/32Gb) platforms.
In March 2016, Cisco agreed to acquire Leaba Semiconductor,
a venture-backed fabless semiconductor company, for $320 million in cash and
assumed equity awards, plus additional retention based incentives. Leaba, which
is based in Israel, specializes in networking semiconductors. The company is in stealth mode and has not
announced any products.
Through this string of mergers, we see that enormous
consolidation is underway in the semiconductor industry and that given its
prominence in the field, we can surmise that ARM must have been the subject of
many proposed deals. It would have been
expected to see ARM paired up with developers of switching silicon, RF chips,
or fast memory. The SoftBank acquisition
therefore is incongruous.
SoftBank’s Charismatic Chairman
When trying to assess the rationality of this bid it is
worth noting that Masayoshi Son has never been easy to characterise. He is
certainly a long way from being an investor in the calm mould of Warren Buffett
or Bill Gates and does not have a flawless history in the investment business.
During the dotcom boom Son bought almost anything that moved and ended the
decade with the unenviable reputation of having lost more money than any other
entrepreneur in history i.e. about $ 70 billion Son has a risk-aggressive and
maverick personality and is inclined towards making massive and unusual bets on
trends and companies that usually result in either colossal successes like Ali
Baba or huge failures like Vodafone KK --therefore normal financial yardsticks
cannot be easily applied to his decisions --since almost by definition he is
working on an unique perception that almost no one else shares. As an example
of Son's unpredictability, a few weeks ago Nikesh Arora the ex-Google executive
most people thought was certain to succeed Son left his job abruptly after Son
changed his mind and decided he was too young to retire which indeed at under
sixty years he certainly is.
Masayoshi Son's abiding interest in humanoid robotics should
be also noted.
In February 2015, SoftBank acquired 95% stake in Aldebaran
Robotics SAS, a decade-old robotics developer based in Paris that, in
collaboration with SoftBank Mobile, created Pepper, a humanoid robot with four
microphones, two HD cameras, a 3-D depth sensor, a gyroscope in the torso,
touch sensors (head and hands) six lasers, and a touch-screen display. The big advancement with Pepper is its
attempt to understand its physical environment and interact with humans on an
emotional level. Following the buyout, Bruno Maisonnier, founder and CEO of
Alderaban, stepped down and was replaced by Fumihide Tomizawa.
Several thousand early versions of Pepper were shipped in
late 2015. Full commercial release of
Pepper is expected shortly in Japan. An active third-party develop program is
underway.
Earlier this year, various company activities in this sector
were consolidated under SoftBank Robotics Holdings Corp, based in Tokyo and
with offices in France (formerly Alderaban Robotics), U.S., and China.
In March 2016, SoftBank and Microsoft announced a
partnership to create a next-generation cloud-enabled robot using “Pepper” —
SoftBank Robotics' humanoid robot — and Microsoft's cloud-based Azure IoT
Suite. The idea is to build a humanoid robot for the retail industry to serve
customers in person. This version of
Pepper will use Microsoft's Surface Hub large-screen collaboration device, its
Surface 2-in-1 devices, and data repositories in the Azure cloud, such as
inventory systems, AI assistance from Cortana, and the Microsoft Translator
application.
In January 2016, SoftBank announced plans to offer a version
of the Pepper humanoid robot to the enterprise market that would integrate
cognitive capabilities of IBM's Watson.
The Watson-powered Pepper would try to make sense of a range of social
media, video, image and text inputs. IBM said it will give clients access to
Watson APIs and various pre-packaged applications. The hospitality industry is target for the
partners.
On June 21st 2016, SoftBank reached a deal to sell its 84%
stake in Supercell Oy, a developer of mobile games based in Helsinki, Finland,
to Tencent Holdings for approximately US$10.2 billion. SoftBank owned the
controlling stake in Supercell since 2013, but let the business operate as an
independent company with its own unique culture and independent team of
developers. The proceeds from the sale will be used for the ARM acquisition.
