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Could China Get Approval for a Semiconductor Acquisition?


Apr. 18 2016, Updated 9:07 a.m. ET

Possibility of Lattice Semiconductor acquisition

In the previous part of this series, we saw that Lattice Semiconductor (LSCC) reported losses in the last two quarters of fiscal 2015, as a slowdown in smartphone shipments, especially of high-end phones, reduced its revenue from its key customer, Samsung (SSNLF) Electronics. Recently, Lattice Semiconductor revealed that Tsinghua Unigroup purchased a 6% stake in the company and is interested in buying more. This has raised the possibility of an acquisition. However, an acquisition by a Chinese company would come under scrutiny by US authorities and would face difficulty in securing regulatory approval.

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China’s previous attempts to acquire US semiconductor companies

China’s (MCHI) Tsinghua Unigroup was a key player that triggered the semiconductor consolidation wave in 2015. The company attempted to acquire Micron Technology (MU) for $23 billion. However, the bid was rejected by US authorities over national security concerns.

In the case of Western Digital (WDC), instead of acquiring the entire company, Tsinghua Unigroup offered to acquire a 15% stake in WDC for $3.8 billion through its subsidiary Unisplendour. However, the CFIUS (Committee on Foreign Investment in the United States) decided to review the transaction. A day after the review was announced, Unisplendour withdrew its bid.

In other semiconductor deals, a Chinese consortium offered to acquire a smaller player, Fairchild Semiconductor (FCS), for $2.5 billion, challenging ON Semiconductor’s (ON) offer of $2.4 billion. No decision has been made, and so far the deal has not come under the CFIUS’s scrutiny.

Probability of the Lattice Semiconductor-Tsinghua Unigroup merger coming under scrutiny

Any acquisition of Lattice Semiconductor by a Chinese company is likely to come under the CFIUS’s scrutiny, as Chinese nationals were arrested in 2012 for attempting to smuggle out Lattice Semiconductor’s dual-use programmable logic devices.

Moreover, China’s move to become self-dependent in the semiconductor market may prove a threat to the US semiconductor industry. To avoid this threat, the US has banned Intel (INTC) from supplying high-end processors for China’s supercomputers.

If Lattice Semiconductor gets an acquisition offer from Tsinghua Unigroup, the former’s share will likely rise further. However, there’s a high probability that such a deal wouldn’t be completed.


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