2015 has been a huge year for mergers and acquisitions, with current projections predicting the total value for the year will be the highest since pre-recession levels. Well-known industry leaders such AbbVie and Pharmacyclics, Royal Dutch Shell and BG Group, and Kraft and Heinz have all announced mergers this year, creating huge international corporations to compete in the global market. Several sectors have seen a large share of the activity, one being the technology industry, especially in the electronics and semiconductor area. The semiconductor industry is the backbone of the technological industry, producing the chips used in computers, cell phones, and appliances.

In the chip industry, competition is extremely fierce and any merger of one company leads to action by its competitors. This effect has been seen this year, as 2015 has already more than doubled last year’s M&A activity, with major companies such as Intel, Avago Technologies, and NXP Semiconductors all completing huge deals to bolster their positions in the marketplace. Avago’s acquisition was particularly eye opening, as its $36.4 billion acquisition of Broadcom was the largest tech deal since the dotcom bubble and helped push Intel's merger with Altera. Possibly in response to these deals, Texas Instruments is now rumored to be in talks to acquire Maxim Integrated Products, a company valued at close to $12 billion.

With all of the M&A activity in this sector, many wonder why 2015 was the year for consolidation. Several factors have come into play, such as the high production costs that make it hard for small and medium size companies to successfully compete against the major chip makers. Rising research and development costs also hinder smaller competitors and start ups, especially as the Internet of Things becomes more and more prominent. The increased use of chips in everyday items has forced chip companies to focus on low energy, low cost options, favoring large companies that can take advantage of economies of scale.

Another factor in the M&A activity is the changing international semiconductor market. China has been the world’s leading consumer of semiconductors for the past decade, but relies almost exclusively on foreign imports from countries such as the United States and South Korea. In hopes to become more self-sufficient, this summer Chinese officials announced a plan to invest $160 billion in local chip companies over the next decade, worrying major companies across the world that heavily rely on sales to China. The next five to ten years will be telling for the chip industry, as the Internet of Things progresses and international competition intensifies, possibly leading to even more M&A activity.

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