The Applied Materials acquisition failed. Will semiconductor acquisitions become more and more difficult in the future?

On the evening of March 29, Applied Materials announced that it had terminated its acquisition of Kokusai Electric from investment company KKR and would pay KKR a cash termination fee of US$154 million.

Analysts pointed out that if Applied Materials successfully acquires International Electric, it will consolidate its position as the world's largest semiconductor equipment manufacturer, but if the transaction fails, it will not have much impact on Applied Materials itself, especially at the current time of chip shortage.

However, combining the chip shortage with the epidemic and anti-globalization factors, future semiconductor acquisitions may be subject to stricter scrutiny.

On July 2, 2019, Applied Materials officially announced that it would acquire Kokusai Electric from international investment company KKR for $2.2 billion in cash. After the transaction is completed, Kokusai Electric will operate as a business subsidiary of its Semiconductor Products Group and will continue to be headquartered in Tokyo. In January this year, Applied Materials announced that it would increase the acquisition price to $3.5 billion and postpone the revised acquisition deadline by three months to March 19.

Kokusai Electric, formerly part of the Hitachi Group, is known for manufacturing equipment for thin film deposition, which is also the purpose of the acquisition by Applied Materials. According to data when the deal was announced in 2019, the acquisition of Kokusai Electric would be the second largest deal in the history of Applied Materials and would increase the company's revenue base by about 9%.

虽然应用材料与国际电气的市场规模差异显著，但有鉴于中美贸易战的不断发酵，业内人士并不看好交易能够顺利进行。

Gary Dickerson, president and CEO of Applied Materials, said in yesterday’s announcement: “While we are disappointed that the transaction could not be completed, the future prospects for Applied Materials have never been better.”

According to the latest first quarter financial report released by Applied Materials, the revenue in the first quarter reached US$5.16 billion, a year-on-year increase of 24%, as the demand for semiconductor business continued to rise, and the overall economic and industrial trends promoted the consumption of semiconductors in multiple markets and applications. In addition, Applied Materials expects the revenue in the second quarter to reach US$5.39 billion, which is higher than the market expectation.

According to the latest report released by SEMI, the global semiconductor industry is expected to set a rare record high in wafer fab equipment spending for three consecutive years, with a 16% increase in 2020, a forecast growth rate of 15.5% in 2021, and 12% in 2022. During the three-year forecast period, global wafer fabs will increase equipment spending by approximately US$10 billion per year, eventually climbing to US$80 billion in the third year.

Overall, the failed acquisition of Applied Materials will not affect its own operations in the short term. With the global chip shortage spreading, its revenue is expected to continue to rise. However, the difficulty of this acquisition lies in the fact that Applied Materials itself is in an unusual position, and the Chinese market is also very important to it.

According to Applied Materials' 2020 financial report, the Chinese mainland market revenue reached US$5.456 billion, accounting for 32% of the total revenue, making it the largest market for Applied Materials sales. According to Ju Long, global vice president and president of SEMI China, at SEMICON China 2021, the growth rate of the semiconductor equipment market in mainland China reached 39% in 2020, making it the world's largest equipment market for the first time.

On the other hand, VLSI Research, a US semiconductor industry research company, announced the sales ranking of the world's top 15 semiconductor equipment manufacturers in 2020. Applied Materials continued to rank first with a revenue of US$16.365 billion and a market share of 17.7%, also ranking first. Applied Materials has a wide business layout, with corresponding equipment products in atomic layer deposition, physical vapor deposition, chemical vapor deposition, etching, rapid thermal processing, ion implantation, measurement and detection, and cleaning.

中国巨大的市场规模以及对应用材料营收的重要性是左右这桩收购案的因素之一，而应用材料本身具有一定的市场垄断性，若如愿收购国际电气后，其本身广泛的产品组合将进一步拓展，市占率也会进一步提升，在半导体之于各行业的重要性愈发强烈的今天，对中国乃至全球市场的影响将会显著。

On December 19 last year, China's National Development and Reform Commission and the Ministry of Commerce issued the "Foreign Investment Security Review Measures". China's new investment supervision system is very similar to the US CFIUS (Committee on Foreign Investment in the United States), covering foreign investment control issues in energy, natural resources, agriculture, Internet technology and financial services.

The new system is being introduced at a critical juncture for Nvidia's acquisition of Arm, which will be subject to extensive scrutiny by market regulators in many countries and regions, including China and the UK.

The chip shortage has made countries realize that semiconductors worth only a few dollars may have different degrees of impact on the global industry. The semiconductor industry chain is highly segmented and complex, and a single move can affect the entire system. It has become a strategic focus for the development of many countries. It is foreseeable that in the future, acquisitions in the semiconductor industry will be subject to stricter scrutiny by regulators in various countries.