Semiconductors: Supply-chain shortages will spur M&A

Semiconductor deal makers explore onshoring, M&A, and the supply chain to mitigate market risk

David Creamer

David Creamer

Managing Director, Corporate Finance, KPMG US

+1 408-367-7064

The global semiconductor shortage began in late 2020, when supply could not keep up with surging demand in a recovering economy. Manufacturers of everything from automobiles to refrigerators found that they could not get enough chips to complete their products. Going into 2022, it seemed like the imbalances might fade, but these prospects appear gone. Russia’s invasion of Ukraine has effectively cut off supplies of neon from Ukraine, which is used in deep ultraviolet lithography.1 And the war has disrupted supplies of nickel, gold, silver, and other materials used by chipmakers.

The additional stress places more urgency on the industry search for more diverse and resilient supply chains and may ultimately lead to more U.S.-based production capacity. We believe this will also drive momentum for M&A in the sector in the coming months. 

To break supply bottlenecks, money is flooding into the sector from multiple sources. The Biden administration’s proposed CHIPS (Creating Helpful Incentives to Produce Semiconductors) for America Act earmarks $52 billion in federal investments to expand domestic manufacturing and reduce reliance on overseas supply.2 Taiwan’s TSMC, the world’s largest foundry, is already building a new $12 billion plant in Arizona. Meanwhile, the Semiconductor Industry Association estimates that South Korea has committed $55 billion to $65 billion for semiconductor investment over three years, the European Union $30 billion to $50 billion over 10 years, and China an incredible $170 billion over 10 years.3

Last year, Intel formally entered the foundry business and in February 2022, announced a $5.4 billion deal to acquire Tower Semiconductor, an Israel-based foundry—the deal will give Intel Foundry Services fabs in Israel, Japan, California, and Texas. 

Still, semiconductor deal making in the U.S. was modest in Q1’22 with 10 transactions, including one SPAC deal, worth $6.4 billion. But in addition to strategic acquirers like Intel, PE and SPAC buyers are expected to get increasingly active in the semiconductor M&A marketplace. For example, Cepton, an innovator in automotive ADAS lidar, went public on February 17 through a SPAC merger (first announced in August 2021). With more than a dozen chip companies now public through SPACs, a broader pool of public buyers is likely to lead to more transactions and make bids more competitive.

Where else will the deals come from? We expect increased M&A activity by non-semiconductor companies that want direct access to hard-to-find chip designers and better control over their designs. Apple, for example, has brought chip design capabilities in-house through acquisitions over the years. Other tech companies such as Microsoft, Amazon, and Google also design chips for their own products and may well pursue Apple’s acquisition strategy of chip design capability to gain more control over hardware designs and software-hardware integration.

Meanwhile, automotive manufacturers have been stung by semiconductor supply issues and are working to establish better access to key components. Ford recently announced a partnership with Global Foundries, a U.S.-based foundry, and GM and other automakers have moved into the distribution channel to access key components they couldn’t source through their historical channels. Automakers are also bringing design capabilities in-house and forging closer alliances with chip companies to codevelop and manufacture chips. Tesla has historically designed many of its own chips, which has allowed it to better navigate supply-chain problems by redesigning hard-to-get devices. Other automakers may well pursue semiconductor M&A to take advantage of in-house capability as Tesla has.

As semiconductor M&A heats up, one concern is antitrust scrutiny. For example, in February, NVIDIA terminated a $40 billion deal to acquire U.K.-based chip designer ARM, which would have been the largest semiconductor deal in history, because of opposition from the EU and the U.S. Federal Trade Commission. However, in Q1’22 AMD was able to secure regulatory approval for its nearly $35 billion acquisition of Xilinx. And SK Hynix received approval to complete the first phase of its transaction to acquire Intel’s NAND flash memory manufacturing facility in China. Buyers and sellers will need to plan carefully around regulatory issues. But that’s unlikely to slow either the interest or opportunities in semiconductor M&A.


  1. See KPMG, “Russia-Ukraine war: Impact on the semiconductor industry,” March 2022
  2. Source: CNET, “Biden to Congress: Pass Bill to Fund US Chip Manufacturing,” March 2, 2022 
  3. Source: Semiconductor Industry Association, “Global Governments Ramp Up Pace of Chip Investments,” June 02, 2021 and “Global Semiconductor Incentives,” February 04, 2022