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Semiconductor Value Chain

Semi Equipment Makers Applied Materials, TEL to Merge

23 September 2013

Applied Materials Inc. and Tokyo Electron Ltd. (TEL), two of the largest vendors of semiconductor manufacturing equipment, announced plans to merge to create a combined company with a new name and a leadership team made up of executives from both firms.

The all-stock transaction, which values the combined company at about $29 billion, has already been approved by the boards of directors of both companies. The deal, which is expected to close in the second half of 2014, would be the largest yet in a wave of consolidation that has swept through the semiconductor capital equipment industry in recent years.

For years, Applied (Santa Clara, Calif.) and TEL (Tokyo, Japan) have been among the largest semiconductor capital equipment vendors. In previous years, the two often ranked No. 1 and No. 2 in fab tool sales. Both companies are also among the leaders in display manufacturing tool sales.

The combined company will have a new name, dual headquarters in Tokyo and Santa Clara, and a dual listing on the Tokyo Stock Exchange and the NASDAC, the companies said. Plans call for the new firm to be incorporated in the Netherlands.

The deal is subject to regulatory review and shareholder approval. Since the companies compete head-to-head in several areas, the deal could face significant regulatory scrutiny in both the U.S. and Japan.

In a jointly released statement, the companies described the deal as a "merger of equals" that would accelerate the development of products to "address future technology inflections and create greater value for shareholders, customers and employees."

With materials innovation now even more critical to chip firms' ability to drive cost-effective performance gains in mobile chips and displays, Applied and TEL said they intend to position the new company as a differentiator for chip yield solutions to the semiconductor industry.

Tetsuro Higashi, TEL's chairman, president and CEO, will serve as chairman of the combined company. Gary Dickerson, Applied's president and CEO, will be the chief executive officer of the combined company. The new company's board of directors will be made up of 11 directors—five directors appointed by each company and one additional director to be mutually agreed upon.

Higashi described the merger as a "bold step forward" for the semiconductor capital equipment industry. "Built on a foundation of people, technology and commitment, we are creating a truly global company that we believe will expand the value we deliver to our customers and be able to achieve new levels of financial performance," Higashi said.

"We believe the combination will accelerate our momentum for profitable growth, increase the value we deliver to shareholders and create great opportunities for our employees," Dickerson said.

By joining forces, Applied and TEL said they expect to realize $250 million in operating cost savings in the first fiscal year following the merger. By the third fiscal year, they expect that savings to be $500 million, they said in the statement.

In addition to being two of the largest capital equipment firms, Applied and TEL are also two of the oldest. TEL was founded in 1963, while Applied got its start in 1967.

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