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Tuesday, December 02, 2014

Cypress and Spansion in $4bn merger

By Nick Flaherty

Blimey! Cypress and Spansion are to merge in a $4bn deal that will change the landscape of the embedded market and potentially mark more consolidation. The key area for this deal is of course memory - Spansion was the spin off of AMD's flash memory business, while Cypress started out making SRAMs and has since moved into other controller-based devices. 
As a result the combined company will have annual turnover of $2bn and be the leader in SRAM and in NOR flash, and be a major player in microcontrollers - Cypress is well established in ARM-based microcontroller designs alongside its PSoC capacitative touch screen controller, while Spansion has recently been adding ARM cores to its memory devices. 
Although the deal is pitched as 50/50 - which is itself often a problem for deciding the direction going forward - it actually looks like a Cypress takeover.  Cypress founder and long term CEO TJ Rodgers will be CEO of the merged company while Ray Bingham of Spansion will be non-executive chairman and the company will be called - wait for it - Cypress Semiconductor. 
“This merger represents the combination of two smart, profitable, passionately entrepreneurial companies that are No. 1 in their respective memory markets and have successfully diversified into embedded processing,” said Rodgers, Cypress’s founding president and CEO. “Our combined company will be a leading provider of embedded MCUs and specialized memories. We will also have extraordinary opportunities for EPS accretion due to the synergy in virtually every area of our enterprises.”
The merger is expected to achieve more than $135 million in cost synergies on an annualized basis within three years and to be accretive to non-GAAP earnings within the first full year after the transaction closes. The combined company will continue to pay $0.11 per share in quarterly dividends to shareholders.
“Bringing together these high-performing organizations creates operating efficiencies and economies of scale, and will deliver maximum value for our shareholders, new opportunities for employees and an improved experience for our customers,” said John Kispert, CEO of Spansion. “With unparalleled expertise, global reach in markets like Japan and market-leading products for automotive, IoT, industrial and communications markets, the new company is well positioned to deliver best-of-breed solutions and execute on our long-term vision of adding value through embedded system-on-chip solutions.”
The closing of the transaction is subject to customary conditions, including approval by Cypress and Spansion stockholders and review by regulators in the U.S., Germany and China. The transaction has been unanimously approved by the boards of directors of both companies. Cypress and Spansion expect the deal to close in the first half of 2015. 

What other consolidation will happen remains to be seen but memory companies particularly will be vulnerable - the most notable recent deal was Global Foundries being paid to take on IBM's semiconductor business. I expect to see some other 'mergers' based around the Internet of Things as companies position themselves for growth i the next few years.