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Infineon Passes Final Regulatory Approval to Acquire Cypress Semiconductor

April 10, 2020 by Shannon Cuthrell

The acquisition of Cypress Semiconductor is slated to strengthen Infineon's automotive market dominance

With clearance from U.S. regulators, Infineon’s acquisition of San Jose-based Cypress Semiconductor is expected to propel the German semiconductor giant to the top of the growing automotive chip market. 

The deal, valued at $9.9 billion, has Infineon expecting its revenue to increase by more than 9% as it seals a strong position in the automotive, industrial, and IoT arenas. The move allows Infineon to move into a larger place of power against competitors such as NXP Semiconductor, STMicroelectronics, Renesas Electronics, and more. 

The acquisition was first announced in June of last year. The Committee on Foreign Investment in the United States cleared the transaction last month, but approval is pending from China’s State Administration for Market Regulation. 

The deal allows Infineon to expand beyond its core security IC market. The addition of Cypress’ connective products portfolio will boost Infineon’s existing sensors and security solutions, edging more into the IoT space. Cypress’ microcontrollers and NOR flash memories will also provide Infineon with additional leverage in the automotive market, meeting demand for advanced driver assistance systems and other high-demand auto applications.  

 

Cypress 3.0 Captured the Embedded Systems Market 

In 2017, Cypress implemented an ambitious plan to capitalize on the growth of the embedded systems market, combining its MCU, wireless connectivity, analog, USB and memory solutions with IoT-enabled software. The “Cypress 3.0” strategy came after the company merged with semiconductor memory manufacturer Spansion and acquired Broadcom’s wireless IoT business. 

In a blog post from February 2017, Cypress CEO Hassane El-Khoury wrote that segments like advanced driver assistance systems, connected cars, and in-vehicle infotainment are outpacing average growth trends for the semiconductor industry. As such, El-Khoury wrote, “We must continue to improve our performance in markets growing faster than the broader semiconductor industry.”

In line with this renewed target market, Cypress transferred its portfolio of SLC NAND Flash memory products to South Korean memory chip company SK hynix in 2019. The divestiture allowed Cypress to pursue the high-growth market segments of IoT and automotive applications. 

In 2019, Cypress reported record automotive revenue of $829 million — just over 38% of the company’s total revenue for the year. Cypress’ IoT business revenue increased by 18% in 2019. 

 

Cypress Semiconductor’s revenue breakdown by market segment.
Cypress Semiconductor’s revenue breakdown by market segment. Image courtesy of Cypress Semiconductor. 

 

Boosting Infineon’s Existing Automotive Solutions 

With Cypress’ strengths in automotive and IoT solidified, Infineon is expecting a major boost to its revenue in the coming years. Infineon’s automotive products already account for the majority of revenue company-wide. In its 2019 earnings report, Infineon reported €3.5 billion in revenue for its automotive business, which dominated the company’s total revenue of €8 billion. 

 

Infineon’s 2019 revenue by market segment.
Infineon’s 2019 revenue by market segment. Image courtesy of Infineon.

 

Infineon stated in a news release that the Cypress acquisition is expected to yield €180 million in cost synergies per year by 2022, setting a long-term revenue growth forecast of €1.5 billion annually. 

In the immediate future though, Infineon’s 2020 profitability will undoubtedly be defined by the coronavirus pandemic. In late March, the company withdrew its earlier financial outlook for the 2020 fiscal year, which originally projected 5% year-over-year revenue growth. While Infineon reassesses the expected impact of COVID-19 on its revenue targets, it plans to prioritize areas that protect profitability and cash-flow generation. Executives will reveal more in its next quarterly earnings meeting set for May 5.  

The future of the automotive market remains unknown in an economically bleak 2020. But when the global economy recovers from pandemic strain, semiconductor manufacturers like Infineon will need to meet the increased demand for chips used in body electronics, safety systems, powertrain components, and other core applications for smart cars.

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