TAIPEI/TOKYO -- Taiwan's GlobalWafers is looking to take on Japanese giants and fend off Chinese up-and-comers by becoming the world's third-largest silicon wafer manufacturer through the acquisition of an American rival.
The sixth-ranked producer of the semiconductor base material will pay $683 million for SunEdison Semiconductor, currently No. 4, under a deal announced Thursday. This will let GlobalWafers close in on such powerful Japanese companies as Shin-Etsu Chemical and Sumco, the market's two top players, CEO Doris Hsu told a news conference in Taipei.
The deal is expected to yield sizable synergies. The Taiwanese company's expertise lies in making highly energy-efficient wafers, while SunEdison specializes in wafers for chips for high-performance devices. Few of their operations overlap, paving the way for efficient technological development, Hsu said.
GlobalWafers and SunEdison together control roughly 17% of the silicon wafer market, according to Taiwanese media. Shin-Etsu Chemical and Sumco have an estimated combined share exceeding 50%, with each contributing about half. The acquisition thus puts the Japanese giants well within reach for the Taiwanese company.
SunEdison will receive $12 per share in the acquisition -- nearly an 80% premium on its average share price over the past 30 trading days. But the anticipated surge in chip demand as everything from automobiles to infrastructure links up to the "internet of things" is seen making even that price worthwhile.
GlobalWafers began life as a semiconductor unit of Sino-American Silicon Products, or SAS, Taiwan's leading supplier of wafers for solar panels. The unit was carved out into a separate company in 2011. A year later, GlobalWafers picked up silicon wafer operations from Japan's Covalent Materials, now CoorsTek, giving it a sizable boost.
Nasdaq-listed SunEdison has a strong presence in such markets as Europe and South Korea. GlobalWafers looks to close the purchase within the year by clearing such hurdles as approval from antitrust authorities in various jurisdictions.
The acquisition comes partly in response to emerging Chinese competitors, according to an analyst familiar with the semiconductor industry. Producing the extremely pure silicon wafers required for chips at low cost is no easy task -- a fact that has helped the market's Japanese leaders remain dominant. But China has recently begun pumping out its own wafers as part of a national effort to develop the semiconductor sector, making companies there potential threats down the road.
Investors in the Japanese leaders were apparently pleased by news of the acquisition, expecting consolidation in the wafer market to ease price competition. Sumco shares climbed 16% to a year-to-date high of 944 yen at one point Friday. Shin-Etsu Chemical ended the day up 2% at 7,298 yen.
But the whole point of the deal is "to break the duo's hold by lowering costs," said Takashi Ogawa of research firm Gartner Japan. A bulked-up GlobalWafers "could become a threat to the Japanese companies in the future," Ogawa said.
Competition is already pushing down prices industrywide. Some 10.4 billion square inches of silicon wafers were shipped for use in semiconductors in 2015, according to global industry association SEMI. But revenue dropped 5% to $7.2 billion. GlobalWafers could take this a step further by honing its edge in low-cost manufacturing, a traditional strength of Taiwanese technology companies.
The wafer maker is far from the first in Taiwan's tech sector to combat market pressures through industry realignment. Hon Hai Precision Industry, or Foxconn, completed its acquisition of Sharp on Aug. 12. The world's largest contract electronics manufacturer sees the Japanese company's technology and product development prowess enabling it to catch up to South Korean companies in next-generation display panels. Foxconn aims to use these operations, as well as home appliances, to supplement its core business, transitioning to a new growth model as demand for smartphones slows and mainland competitors gain strength.
Chip designer MediaTek in May inked a cooperation agreement with NavInfo, a Chinese provider of map data for car navigation systems, aimed at future investments.
Others have made themselves acquisition targets to survive. Inspection equipment producer Hermes Microvision agreed in June to become a wholly owned subsidiary of ASML, a Dutch maker of semiconductor production equipment. Joining a major technology group is seen spurring sales of the Taiwanese company's high-performance devices. While much has been made of the troubles facing the island's tech sector, taking on partners worldwide could help enterprising companies stay in the spotlight.