Cavium, a midsize manufacturer of computer chips, was proposed to be taken over by Matthew Murphy, CEO of Marvell Semiconductor. It was a bold move considering the fact that he had become the chief executive for the first time and it was just about a year into the new role.
There has been a rise of 18 percent in share prices of Marvell following the acquisition offer and added $1.65 billion to its market capitalization. This added to the already 80 percent surge in its share price in the 16 months of Murphy being the CEO.
“Marvell was a strong company from a technology point of view, but they definitely didn’t have the financial discipline they needed,” said Mark Edelstone, Morgan Stanley’s global head of investment banking for the semiconductor industry. “It took a change in leadership to make that happen.”
Semiconductors, made from processed silicon, are the back bone of computing machines that turn random data into discernable forms and store data in multiple ways for everyday devices. In recent years, many of the tech companies founded by technical experts have seen them stepping down or retiring. They have bene replaced by aggressive chief executives who do not hesitate to push for big acquisitions, slash costs and drive up profits.
This year has been a deal making boom in the chip industry and can be explained by the focus of the new brand of CEOs to maximizing shareholder value. This industry trend incudes the ending of the $14.8 billion purchase of Linear Technology by Analog Devices and Broadcom’s acquisition bid for Qualcomm for $105 billion. The trend of acquisitions in the chip industry have been driven by the slow sales and he costs involved into the development of new chips where companies have found it more apt to acquire technology through acquisitions instead of making more spends for development of new technologies which would take years to mature.
“Founders tend to be much bigger risk-takers,” said Syed Ali, Cavium’s chief executive, who co-founded the company in 2000. “We are a dying breed, I guess.”
Hock Tan. The CEO of Broadcom, is a representative of the new generation of chip company leaders. There were six acquisitions under his leadership before the company rocked the industry by offering to acquire Qualcomm
On the other hand, Qualcomm itself is not new to acquisitions when the company struck a $38.5 billion deal for takeover of NXP Semiconductors in 2016. This would alter the company after completion, say Qualcomm. Ans since 2015, two large companies were acquired by Intel for $32billion with Brian Krzanich at its helm.
Many managers at chip companies “think they can engineer their way out of problems,” Mr. Tan said. “They’re still fighting the past battles of the industry.”
“We don’t buy companies to keep doing what they were doing,” Mr. Steve Sanghi, leader of Microchip Technology in Chandler said. “We buy companies to fix them.”
“You either go bold or go home,” said Rick Hill, who became Marvell’s chairman as part of the Starboard-led shake-up. “We’re not interested in running a small company.”
(Adapted from Nytimes.com)