Diving into markets for embedded devices and industrial sensors, Dialog Semiconductor has agreed to purchase Atmel for around $4.6 billion. The deal is trying to tap into the momentum behind the Internet of Things, including connected cars, smart household devices, and connected sensors in factories.
Dialog Semiconductor sells power management integrated circuits to smartphone manufacturers, with Apple and Samsung accounting for over 80% of its revenue. Atmel makes microcontrollers for industrial and consumer hardware. Jala Bagherli, Dialog’s chief executive, has admitted that the companies have a very small overlap in products.
“The rationale for our acquisition is to build a complementary business to power savings and power management and it gives us a better platform for the Internet of Things,” Bagherli said in a recent interview with Reuters. Bagherli called out Honeywell, General Electric, and Google's Nest Labs as potential customers.
“We get access to microcontrollers, which are the brains of [connected] devices,” Bagherli added in a recent interview with Bloomberg. "We get access to things like encryption to protect and to ensure the safety of the data that get transferred between different nodes in the network.”
In recent years, a wave of consolidation has washed over the semiconductor market. Many chip makers are trying to sell integrated systems as well as individual chips. “By combining power management, microcontrollers, connectivity, and security technologies, we will create platform for growth” in Internet of Things, Bagherli said in a statement.
This consolidation is driven by the rising cost of design and manufacturing chips. It has generated astronomical deals: Earlier this year, Avago Technologies acquired Broadcom for around $37 billion, and NXP Semiconductor merged with Freescale in a $17 billion deal. In June, Intel announced that it had purchased Altera for $16.7 billion. More recently, Qualcomm purchased Cambridge Silicon Radio for $2.4 billion.
Before the deal, Dialog was trying to expand into sensors. Last year, the company proposed a merger with AMS, the Austrian sensor giant, but talks were suspended indefinitely. Now, with Atmel’s expertise in microcontrollers, the company is shifting into industrial technology and smart homes.
The transaction, which Dialog will fund with existing cash and new debt, is expected to close in early 2016. Dialog paid a 43% premium on Atmel's stock prices last Friday. In a statement, the company predicted that the deal would result in annual cost savings of $150 million within two years.