The Bargain Basement
Aaron Hand, Managing Editor -- Semiconductor International, 2/1/2003
This year's Industry Strategy Symposium (ISS) took place last month in Pebble Beach, Calif., bringing together several of the industry's analysts and key players to discuss the latest take on the downturn that wouldn't end. The general banter was of an upturn in the second half of this year, as well as a debate about whether the semiconductor industry is "mature."
But also floating around panel discussions and casual conversations was the declaration that the industry should be seeing an inordinate amount of consolidation in the coming year. For the companies that have managed to hold onto some cash piles during these past couple years, what better time to get a deal on the little guys who have been so devastated by the effects of the downturn? It's a buyer's market.
As if to make the point, major EDA player Synopsys Inc. (Mountain View, Calif.) announced the Monday after ISS ended that it planned to acquire Numerical Technologies Inc. (San Jose), an enabler of subwavelength lithography that has been struggling to keep its head above water. Despite its dwindling revenue streams, Numerical has technology that is attractive to the EDA arena, and the time was right for it to be snatched up. Cadence Design Systems Inc. (San Jose) — Synopsys' key rival — had been rumored to be interested in acquiring Numerical as well. In light of Numerical's new ownership, however, Cadence has said it will not be renewing any of its optical proximity correction (OPC) or phase-shifting license agreements with Numerical. There goes some 15% of Numerical's revenue.
But Synopsys appears confident that its purchase will come to fruition. And, after all, the bargain was there to be had. More of the goliaths will undoubtedly be finding their own bargains this year. They've been saving their cash for a rainy day. It's been pouring, but the sun is beginning to show through the clouds. As the market stabilizes but the price tags are still low, it's a perfect time for those who can to expand their technology portfolios and reach into new markets.
In the case of the Numerical/Synopsys marriage, it seems like a good fit. The lithography sector has been talking of late about the pressing need to bridge the gap between design and manufacturing, and this sort of merger could help the industry achieve this goal.
But Numerical is probably lucky to have found a buyer at a time when it is so strapped for cash. In fact, in a conference call with Synopsys and Numerical management, analysts seemed surprised that Synopsys would pay such a high price for Numerical's stock ($7 per share when it had been valued at $3.70 per share), in a deal worth about $250M.
These days, buying companies are looking for companies with strong balance sheets and a good flow of cash. Since the fall-out of the dot-com industry, investors are much more in tune with "burn rates," a term that is cropping up again in the semiconductor industry. Acquiring companies don't want to invest in the little guys if they're burning through their cash too quickly. Venture capitalists are also looking for companies that have plenty of cash — a difficult position for a company that has no cash to properly develop its technology, but can't get the VCs to give them the time of day.
The mergers and acquisitions that will certainly come this year may or may not be unifications that will benefit the industry. But they are likely going to enable buyers to get the technologies they're yearning for, and get them ready for production in a timely manner. And the small, pioneering developers will just keep coming. Like the cyclical nature of this industry, the flow of innovators will again emerge, ready to be folded into the giant industry machine when the opportunity again presents itself.
