Over-capacity, economies of scale and competing product and service offerings will drive chip companies into consolidation to survive the price crunch, according to a report by global trading exchange Converge.
Too many chips has led to rollercoaster price wars across most product groups over the last 18 months. While boom-bust cycles are nothing new to the semiconductor market, consolidation would help mitigate chip supply problems, said Grant Johnson, Converge manager for market intelligence, in a recent market report.
"The primary drivers to merging fit in well with the changing dynamics of the semiconductor market," Johnson wrote.
The rising cost of production facilities is also leading to questions about how long chipmakers will be able to make production costs financially viable. Although companies are increasingly outsourcing their plants and entering joint ventures to lessen their exposure, more complex and costly production methods are taking their toll.
A movement by giants such as Intel to expand product portfolios is also likely to drive mergers and acquisitions in the future, Johnson said.
"Without consolidation and partnering, several chipmakers will throw in the towel, unable to finance the costs required to build a new fab.
"Expect merger activity in the chip industry to reach record levels over the next couple of years," he said.