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takyon writes:

MarketWatch reports on the prospect of more semiconductor companies being swallowed up after a record $119 billion worth of deals in 2015:

Chip mergers will hit a record in 2015, as the lower cost of debt, higher manufacturing costs and a maturing industry fueled more than $119 billion worth of deals. That total reflects 23 deals worth more than $100 million, compared with 24 deals in 2014 valued at $24 billion, according to Morgan Stanley.

Industry executives and bankers say the industry needs to consolidate to get stronger. Growth is slowing and the physical limitations in designing thinner and more minute silicon transistors are making it harder to keep pace with Moore's Law, an observation and prediction by Intel Corp. co-founder Gordon Moore in 1965 that the number of transistors and computing power on a semiconductor would double about every two years. As companies struggle to innovate and keep pace with Moore's Law, sales of silicon-based semiconductors have followed suit.

"If you look at semiconductor end sales in this century, we have only seen a 5% compounded annual growth rate," said Alex Lidow, chief executive and co-founder of privately held Efficient Power Conversion Corp. "It's clearly showing signs of an end market that is very large and very mature and in the same time, the cost for a new facility or new product has skyrocketed. [...] Anything under $4 billion market cap is not going to be here tomorrow," said Lidow, who claimed to be part of dozens of acquisitions in his previous role as CEO of International Rectifier, which was purchased by Infineon Technologies AG earlier this year.

[More after the break.]

As the semiconductor business has matured and growth has slowed, it has become too fragmented, with too many companies competing in a variety of segments, while its customers have consolidated into bigger players. In addition, there has been a gradual changing of the guard, with the retirement of many old-school semiconductor industry founders and CEOs over the last several years. And those trends don't seem to be changing, which should mean these megadeals will continue.

"The consolidation trend is here to stay," said Sumit Sadana, executive vice president and chief strategy officer at SanDisk Corp. which agreed to a $19 billion merger with Western Digital Corp. that is expected to close late next year. "The number of companies in the industry will shrink by a significant amount. I would say in the next three to four years, 25% to 30% of the companies will have disappeared."

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