Europe's Chip Firms Don't Need a Ménage à Trois

A former executive at French semiconductor firm ST Microelectronics is proposing a three-way merger of Europe’s three largest semiconductor companies: ST Micro of France, NXP of the Netherlands and Germany’s Infineon. But while it underscores many of the problems facing the chip industry — and makes for fun headlines! — the proposal is a ludicrous one.

Geographically-based culture differences aside, the three firms don’t need to combine — they need to focus. And their respective actions over the past few years indicate that’s just what they’re trying to do. In an effort to focus on its core markets, Infineon back in 2006 spun out its memory division, then last week it sold its hard disk drive division to LSI. In the meantime, NXP last year exited the VoIP market to focus more closely on six segments, among them consumer electronics, automobiles and cell phones.


The real problem for the industry is that the cost of making and developing chips is becoming ever more prohibitive, and profitable mainstays such as high-end processors are facing more competition. And it’s why in the microprocessor space, Intel’s taking another stab at the low-power market and AMD is trying to use a platform strategy to differentiate its microprocessor chips. It’s also why firms are constantly buying and selling specialized divisions as one player decides to exit a less-than-stellar market and another buys that division to differentiate itself by having an area of expertise.

As market forces continue to wear on chip firms, the best response for most will likely involve an asset-light manufacturing plan and more R&D partnerships. I think in many cases, it will also involve greater specialization rather than diversification. So any ménage à trois for these guys had better be a one-night stand.

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