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Semi-precious

9 Feb 2021 By Liam Proud

European governments have a dearth of chips in the global contest for silicon supremacy. And the ones they do possess are at risk. Britain’s Arm, Frankfurt-listed Dialog Semiconductor, and Germany’s Siltronic are subject to foreign takeover offers worth a combined $51 billion. The situation calls for defensive action, though not all deals should be blocked.

As the chip industry consolidates, Europeans are on the menu. Of the 251 global semiconductor companies worth over $1 billion, 18 are based in Europe, Refinitiv data shows. Thirteen are less than $10 billion, Dialog and Siltronic included, making them possible takeover targets for Asian and American rivals.

M&A hawks would prefer a brick wall from politicians like German Economy Minister Peter Altmaier and British business secretary Kwasi Kwarteng. They shouldn’t. First, it could deprive subscale European chipmakers of a useful cash infusion. Second, it antagonises political allies. Arm, Dialog and Siltronics’ suitors – Nvidia, Renesas Electronics and GlobalWafers – hail respectively from the United States, Taiwan and Japan. Those governments may reciprocate, making it impossible for Europe’s few giants, like $56 billion Infineon Technologies, to grow through acquisitions of their own.

Vetoes must therefore have a high bar, such as protecting access to scarce and economically critical technology. Renesas’ $6 billion Dialog offer doesn’t meet that threshold. There’s nothing politically sensitive about its consumer-electronics chips – Germans are hardly likely to lose access to smartphones. And Europe is well-served in Dialog’s other areas like automotive and industrial chips, by Infineon and STMicroelectronics.

SoftBank-owned Arm, which has historically sold its basic chip designs to anyone willing to pay for them, is another matter. The risk is that Nvidia discriminates against other chipmakers by keeping intellectual property to itself, even though it has promised not to. Arm is also one of the few non-American companies that could play a key role in cloud-based artificial intelligence computing – a potentially critical future area. Meanwhile Siltronic is the only major European supplier of silicon wafer. After its takeover, the region would have negligible influence over this key building block of chips.

Perhaps the UK and German governments can enforce safeguards and find a way to guarantee access for European companies after the Arm and Siltronic takeovers. But such measures are typically hard to implement. The nuclear option of vetoes may be hard to avoid.

 

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