Europe's third largest chipmaker will sell its semiconductor unit to a group of private investment firms in a deal worth Euro 8.3 billion ($US10.6 billion), increasing the pace of consolidation in the industry.
Koninklijke Philips Electronics agreed to sell an 80.1 per cent stake in its chip division to a group including Kohlberg Kravis Roberts & Co (KKR), Silver Lake Partners and AlpInvest Partners. The European electronics giant will keep 19.9 per cent of the business.
The deal is another sign of broad consolidation in the global chip industry. Last month, Intel sold its communications and application processor business to Marvell Technology Group for $US600 million. Earlier this year, PMC-Sierra acquired the former storage semiconductor business formerly owned by Agilent Technologies for $US425 million. The PMC-Sierra deal was also done through KKR and Silver Lake Partners, which bought Agilent's chip business last year.
Europe's second largest chipmaker, Infineon Technologies, plans to use the stock market to divest its memory chip unit, Qimonda. The unit has filed for an initial public offering in the US, expected to fetch as much as $US1.1 billion.
Philips cited a desire to shift away from cyclical businesses as one reason for the sale, a reason noted by a number of companies that have exited the dynamic RAM (DRAM) sector in recent years, including Infineon. The chip industry tends to run in a boom and bust pattern. Chip sales heat up at different times of the year, then slow down at others, causing financial results to leap and fall. The industry also has a two- to three-year cycle in which shortages cause chip prices to spike, followed by companies rushing to invest in new factories that eventually flood the market again and send prices down.
The company also expects its semiconductor division to have a better chance to expand sales as a standalone unit. As part of Philips, it's hard for the chip division to sell products to rivals of Philips' other business units. Motorola made a similar argument when it decided to spin-off its chip division into Freescale Semiconductor two years ago. Prior to the spin-off, there would be no reason for a company such as Nokia to buy handset chips from the division, since it was locked in battle with Motorola for mobile phone market share.
Philips' Semiconductors posted sales of Euro 4.62 billion last year and Euro 4.49 billion a year earlier, racking up operating profits for the division in both years. The unit mainly focuses on chips for mobile communications, networking, consumer electronics, digital displays, contactless payment and connectivity, and in-car entertainment.
The deal, which requires approval from regulators, is expected to close by the end of this year.