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The applied materials will be fine without Kokusai Electric. But the long-term health of the semiconductor equipment market may depend on the global production shortage that will survive US-China tensions, which is hardly certain.
Applied said Monday morning that it had not received approval from Chinese regulators for its proposed $ 3.5 billion acquisition of Japanese Kokusai Electric and that the deal could be terminated. Applied said it would wait until the March 26 deadline to pay the $ 154 million termination fee before considering the deal complete, but the writing appears to be hanging on the wall. As a consolation prize for investors, Applied announced a $ 7.5 billion share buyback – the largest ever, according to S&P Global Market Intelligence. Applied shares rose more than 4% on Monday morning.
Kokusai would have been Applied’s second-largest deal ever, increasing the company’s revenue base by roughly 9% based on numbers given when the deal was announced in July 2019. But the result of this deal has been questioned by the tech industry. —And semiconductor companies in particular — have become militarized pawns in the US-China trade war. The United States has restricted shipments of chips and chipmaking equipment that serve major Chinese tech giants such as Huawei and the SMIC, while China retaliated by dragging its feet on approvals of merger deals , thus limiting expansion opportunities for large US technology companies.
Fortunately, Applied and its other semiconductor device peers have plenty to keep them busy for a long time. The worldwide shortage of chip production will mean high capital expenditure for at least the next two years. This shortage has worsened further in recent times, as harsh winter conditions in Texas slowed down some chipmaking factories, while a fire at a Renesas plant in Japan over the weekend hampered production of the first. global supplier of MCU chips used in automobiles. Several analysts now expect global spending on wafer-making equipment to reach $ 100 billion annually over the next several years, from a total of around $ 70 billion this year.
Some of that spending may come from increased government subsidies, as governments in the United States, Europe and China now strive to strengthen their domestic chip-making capabilities. This could mean even more sales for chip-based equipment makers. But as Applied Materials is now well aware, increased government involvement comes at its own cost.
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