There is a mega merger that would be completed by mid-next year- the merger of two big giants in the “Internet of things” domain, Cypress Semiconductors (CY, Financial) and Spansion (CODE, Financial). The all-stock deal would bring together Cypress known for chips controlling touch-screen devices and Spansion, a major maker of chips for the automotive and industrial control market. Let’s get into some details that have been shared by both the companies’ management on the major reasons behind this merger that will set the companies on a fast track growth mode soon after the merger gets completed. Here’s the total merger story.
The intricate details of the deal just struck
This deal represents the trend towards consolidation of giants in the semiconductor industry, which is the foundation of all electronic devices. Through this merger, the two Silicon Valley companies are looking forward to creating a company that provides microcontrollers and specialized memory chips for embedded systems. This is indicative of the company repositioning itself as the maker of chips for the Internet of Things, or for making everyday objects smart and connected.
Cypress founding president, TJ Rodgers, commented on this merger in these words: “This merger represents the combination of two smart, profitable, passionately entrepreneurial companies that are number one in their respective memory markets and have successfully diversified into embedded processing…”
The deal is being referred as a “merge of equals,” but the surviving company will be known as Cypress Semiconductor Corporation. The combined company would hopefully be the best source for NOR Flash memory chips as well as SRAM memory chips.
The deal that’s costing around $4billion will provide Spansion shareholders 2,457 Cypress shares for each share they own, resulting in shareholders of each company holding 50% of the post-merger company. Subject to regulatory approval, the firm created through this deal would be headquartered in San Jose, California.
How it will affect the IoT market
This merger makes enormous sense with the fast growth in the Internet of Things market, where industrial equipment with connectivity features could put the companies’ products on high demand. The combined company will probably penetrate markets like industrial automation, as both companies make flash memory and low-power circuits used in industrial equipment, medical instruments, smart cars and devices.
The deal is out to create a niche entity looking at possessing intellectual property that will make it valuable in the IoT industry. The merged company would have in-house wireless capabilities which are key for data transfer between IoT devices. In fact, the new company could compete with Freescale Semiconductor Ltd. (FSL, Financial) that has in-house memory assets, Atmel (ATML, Financial) and Texas Instruments (TXN, Financial) which have a strong portfolio in analog and digital circuitry.
Company sources have claimed that the merger would create a company with $2 billion in annual revenue, that would give impetus to further growth in the IoT market.
Last word
With Cypress and Spansion expected to merge completely by first half of the coming year, a new competitor is yet to emerge in the memory chip manufacturing space and thus competition will intensify further ahead in the IoT market. Let’s stay tuned till the merger is done to assess how this move could finally aid the two merging entities create an ultimate niche for themselves in the IoT market.
