Infineon Boosts Auto, IoT Portfolios with Cypress Deal
Infineon Technologies’ acquisition of Silicon Valley mainstay Cypress Semiconductor Corp. underscores what increasingly looks like the end of an era for high-flying U.S. chip makers that have seen their fortunes dim as semiconductor manufacturing shifts to Asia and the pace of industry consolidation quickens.
The $10.1 billion cash deal announced over the weekend would make Munich-based Infineon the leading maker of automotive chips. Infineon said it would pay $23.85 per share to acquire Cypress Semiconductor (NASDAQ: CY). About one-third of the acquisition will be financed.
Infineon (FSE: IFX / OTCQX: IFNNY) said it expects its deal for Cypress to close by the end of 2019. Given current trade tensions with China, U.S. officials are nevertheless expected to scrutinize the deal since Cypress makes parts for the U.S. military.
The Cypress acquisition “will open up additional growth potential in the automotive, industrial and Internet of Things sectors,” Infineon CEO Reinhard Ploss said in announcing the deal. The acquisition was also promoted as strengthening Infineon’s connectivity technologies for IoT and other industrial applications.
The merger allows Infineon to capitalize on the “multi-billion-dollar opportunities from the massive rise in connectivity and computing requirements of the next technology waves,” added Cypress CEO Hassane El-Khoury.
Cypress Semiconductor, San Jose, Calif., which employs 5,800 workers, said this week it entertained several offers before agreeing to be acquired by Infineon. That competition undoubtedly raised the sales price.
The company was founded in 1982 by T.J. Rodgers, the brash entrepreneur from Wisconsin who often railed against government regulation but was not above lobbying lawmakers on issues like expanding the U.S. H-1B visa program.
Rodgers was wistful about the Infineon deal in a cable TV interview. As a major shareholder, “There will be a nice check in the mail, but in the other hand they just sold my baby for a high number of dollars per pound.”
Aside from the physical distance from Infineon, “The match is good,” Rodgers added.
Cypress specializes in embedded chips such as low-power microcontrollers for automotive and industrial applications. It also has defense and aerospace customers. “Cypress makes some fairly exotic military stuff,” Rodgers told CNBC in an interview after the deal was announced. “I look toward to a lengthy [regulatory] process coming up.”
The sales price raised some eyebrows. Infineon executives countered that the Cypress deal is in line with other recent semiconductor acquisitions in the range of about six times the acquired company’s revenues.
George Leopold has written about science and technology for more than 30 years, focusing on electronics and aerospace technology. He previously served as executive editor of Electronic Engineering Times. Leopold is the author of "Calculated Risk: The Supersonic Life and Times of Gus Grissom" (Purdue University Press, 2016).