beyondbrics

By Yue Yang of mergermarket

China’s semiconductor sector has seen a boom in recent years and the acquisition of China-based Si En Integration by Integrated Silicon Solution (ISSI) reflects the increasing enthusiasm of international players to gain a piece of the local pie.

ISSI on Monday announced the $20m cash acquisition so as to strengthen its overall business and presence in China as well as diversify its product portfolio.

This is the first such buy in China for ISSI – a semiconductor designer with a market cap of US$250m. Preferential tax policies for foreign companies involved in semiconductor design is the main reason for the timing of the acquisition, according to Jesse Wang, general manager of Shanghai Netcom.

A number of overseas players like ISSI are eyeing Chinese industry peers closely, Wang says. Just last year, a flurry of mergers and acquisitions took place within the burgeoning sector, including Taiwan-based Media Tek’s acquisition of Aoshitong for US$20m, Atheros’ acquisition of Shanghai-based Opulan for US$85m, and Omnivision’s takeover of Shanghai-based Accel Semiconductor.

More deals are expected this year as a new trend of consolidation in the sector looks to be shaping up. This could trigger bidding wars between local giants like Huawei’s subsidiary Hisilicon and Dangyang Microelectronics Technology, as well as overseas counterparts like as Silicon Storage Technology and Intel, helping to raise the valuations of companies in the sector.

The valuations of some local semiconductor companies have reached eye-watering levels. Shenzhen-listed Nationz Technologies raised Rmb 2.3bn (US$354m) through its IPO in 2010, and currently trades at a price-to-earning ratio of 76.88x. Another company based in Shanghai called BCD Semiconductor Manufacturing announced this week plans to raise $75m in a public offering of its American depositary shares.

It seems perfectly normal then, to expect to see more foreign companies acquiring local ones with niche expertise in the semiconductor design industry, such as Si En Integration.