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Semiconductor Supplier Merger: What Investors Should Know

Tickers in this article: AMAT ASML INTC KLAC LRCX

James Dennin, Kapitall: Two of the largest semiconductor supplier companies are merging, and it's a pretty big deal. 

Applied Materials (AMAT) and Tokyo Electron Ltd (OTC) will be merging their two companies in a $9.39 billion deal.

  • The deal combines the largest chip-making equipment manufacturer with a huge overseas rivals.
  • It looks like a sign of the rapid consolidation going on throughout the semiconductor industry.
  • Companies in this industry are facing increasing scarcity when it comes to finding buyers for the machines they produce.

[Read more from Kapitall: Stocks to Watch as iPhone Sales Soar]

The merger will expand the global reach of both companies, and allow them to combine their assets. That's very important as inventory is getting more difficult to sell. Applied Materials reported income lower than analyst's estimates over two consecutive quarters this year, in part due to lagging PC sales, but also thanks to a competitive market.

  • But the main problem is that there are now only three companies buying a majority of the parts used in semiconductors. 
  • Intel (INTC), Taiwan Semiconductor (TSM), and Samsung (SSNLF)  are the big names.
  • With the first and third largest companies that supply chip-making equipment now merging, only one other major competitor, ASML Holding (ASML) remains. 

As the shift from personal computers to mobile devices continues, the parts that hardware developers need are changing as well. One firm is suggesting that demand for the equipment could shrink by as much as 8 or 9% this year. However, many feel the merger will be complimentary, giving both companies access to new markets and new research, which just wasn't available before. 

It may also be important to note that the smaller company in the deal is located in Japan, which has never seen a merger with an American company before. Some are hopeful this will help technology companies are in both countries keep down costs. A particularly important point, considering that the production of semiconductors, among other things, could become much more expensive if Congress fails to avert a major helium shortage in upcoming budget talks.  

Click on the interactive chart below to see data over time. 

What's in store for this segment of the semiconductor industry? Use the interactive list below to begin your own analysis. 

1. Applied Materials Inc. (AMAT): Provides manufacturing equipment, services, and software to the semiconductor, flat panel display, solar photovoltaic (PV), and related industries worldwide. Market cap at $19.24B, most recent closing price at $15.99.