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How Automotive Chipmakers Will Compete Against NXP-Freescale

31 March 2015

The merger of NXP Semiconductor and Freescale Semiconductor will create a $4 billion semiconductor giant with annual automotive chip sales of at least $1 billion more than its closest rival, Renesas. After the deal closes in the second half of 2015, rivals will be faced with a new industry leader with a broad product portfolio that can compete in most automotive chip segments.

Many automotive chip companies have already made their move with mergers and acquisitions that took place prior to announcement of the NXP and Freescale deals and these have had a major impact on the automotive semiconductor space, according to Luca De Ambroggi, principal analyst for automotive semiconductors at IHS Technology.

For example, the acquisition by Cypress Semiconductor of Spansion in December 2014 was motivated by the organic growth of Spansion’s microcontroller business in the automotive realm. Qualcomm’s acquisition of CSR was due in to Qualcomm wanting to expand its reach in the automotive integrated circuits (IC) world. ON Semiconductor wanted to increase its image sensor business—particularly in the automotive sector—so it went out and grabbed Aptina. Earlier this year, Lattice nabbed Silicon Image in order to compete in the wired and wireless connectivity space including the automotive market.

“While these deals will change the automotive chip landscape, it is more of a global strategy among semiconductor vendors,” says De Ambroggi. “As mergers, by definition, reduce the number of IC sources and the product offerings on the market as a whole, those left behind may have trouble competing.”

De Ambroggi says that something might be happening in Japan as well in terms of an acquisition, although he declined to state who might be the acquiring party. Renesas, the current automotive semiconductor leader (which will be displaced by the NXP-Freescale merger), has been rumored as a possible acquiring company, but has so far been silent on that front.

While the overlap of products in the NXP-Freescale merger is limited, competing companies may receive added business if original equipment manufacturers (OEMs) are not willing to overexpose their production to a single semiconductor supplier. “In this case, OEMs using both NXP and Freescale may need a second source, providing growth opportunities for competitors,” says De Ambroggi.

The NXP-Freescale merger will give the new company inroads into nearly all of the automotive semiconductor segments. With the use of Freescale’s ICs, the company could target autonomous driving systems including automotive emergency braking and adaptive cruise control. It could also use Freescale’s strong position in hybrid-electric vehicles to become the dominant supplier of vehicular wireless communications (V2X) and dedicated short-range communication (DSRC) wireless chipsets.

Beyond these possibilities, De Ambroggi says NXP and Freescale might join forces to penetrate the advanced driver assist systems (ADAS) and infotainment markets. NXP recently announced its complementary metal-oxide semiconductor (CMOS) radar product and Freescale has been a leader in silicon-germanium (SiGe) radar.

“The development of CMOS will offer new integration possibilities—add a microcontroller to radar for example—that will reduce the overall radar price point,” says De Ambroggi. “However, SiGe will probably still remain better positioned for high performance applications, at least, in the short term.”

This could provide huge growth opportunities for the merged company. IHS forecasts that the ADAS semiconductor market could be worth $3 billion by 2020.

Other areas the merged company may move into after the deal is inked include vehicle-to-vehicle (V2V) communications—an important technology in self-driving vehicles that is set to soar after 2020—and automotive night vision, a niche market with technology that could be used for sophisticated self-driving functions.

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