Merger activity heats up in semiconductor equipment and materials industry

NEW YORK, USA: The semiconductor equipment and materials industry was a hotbed of mergers and acquisitions last year. With competition picking up, and margins getting squeezed, several industry heavyweights have looked towards mergers to create cost synergies. The Bedford Report examines the outlook for companies in the Semiconductor Equipment and Materials industry and provides equity research on Novellus Systems Inc. and KLA-Tencor Corp.

Last month the semiconductor equipment maker Lam Research Corp. agreed to buy rival Novellus Systems Inc. for $3.3 billion in stock. Lam said that the acquisition will help it cultivate more advanced chip making technology and increase its revenue faster than either company could on its own. The company also expects it to speed up its earnings growth.

When the deal is completed -- which is expected in the second quarter of 2012 -- Lam shareholders will own 59 percent of the new business, with Novellus investors holding the rest, according to last month's statement. The acquisition will result in annual cost savings of about $100 million by the fourth quarter of 2013, Lam explained.

According to reports from Bloomberg, Lam's purchase is the largest in the industry since Applied Materials announced plans last May to buy Varian Semiconductor Equipment Associates Inc. for $4.9 billion in cash. Applied paid a 55 percent markup over Varian's closing price in that deal -- close to double the premium in the Novellus acquisition.

KLA-Tencor designs, manufactures, and markets process control and yield management solutions for the semiconductor and related nanoelectronics industries. In December the company introduced new additions to its SensArray portfolio of advanced wireless temperature monitoring wafers. The portfolio implements time-based, in-situ temperature monitoring to capture the effect of the process environment on production wafers.