On 6th August, 2020, Applied Materials Inc. backed out of a previously agreed-upon $3.5 billion deal with Japanese chip equipment maker Kokusai Electric. The news surprised many in the corporate and financial world, as the move raised questions about whether the chip industry slowdown had driven Applied Materials away from the deal.
Multiple ripple effects from this incident may have long-term implications in the industry, and this article will go into a detailed exploration of these potential effects.
Overview of Applied Materials
Applied Materials, Inc. is a global leader in materials engineering solutions for the semiconductor, flat panel display and solar photovoltaic (PV) industries. Applied Materials’ mission is to provide premier materials engineering solutions for the world’s most advanced technology segments. Backed by over 50 years of technological innovations and leadership, Applied Materials provides customers with trusted products, services and applications that fuel technological advancements worldwide.
Recently, Applied Materials had announced their intention of walking away from their $3.5bn deal involving US-based semiconductor equipment manufacturer Kokusai Electric Corporation. This decision has had several implications on both sides and its financial future in the industry due to heavy costs incurred during negotiation and due diligence associated with a deal of this size.
Applied Materials walks away from $3.5bn Kokusai Electric deal
On July 23, 2020, the world’s largest supplier of chip-making equipment Applied Materials announced that it was walking away from its proposed $3.5bn deal to buy Japanese chip-maker Kokusai Electric. This move by Applied Materials had a far-reaching impact and created ripple effects in the chip industry, with major implications for the semiconductor sector.
The proposed takeover was part of Applied Materials’ strategy to become the leading chip manufacturer in Japan and beyond, with Kokusai Electric set to be integrated into its portfolio of existing semiconductor businesses. However, citing “adverse market conditions,” Applied Materials abandoned their plans only four weeks after announcing their intention to purchase Kokusai Electric from its owners Dubai based investment firm K1V2 Capital and Tokyo headquartered KKR & Co., Inc .
The ramifications of this move were far reaching for chip-makers across numerous industries around the world. From mitigating risk and increasing demand for chipsets in autonomous driving applications, to the wider opportunities for other electronics conglomerates such as Intel, Toshiba and Samsung – all are affected somehow by this key event. Moving forward, these events could lead to a shift in power dynamics among device manufacturers and changes in supply chain strategies within each company.
Impact on Applied Materials
Last week, Applied Materials announced their decision to abandon the $3.5bn Kokusai Electric Corporation deal, citing ‘unforeseen developments’. This sudden walk away from the deal is expected to have far-reaching impacts on Applied Materials, ranging from stock prices to business strategies.
Let’s take a closer look at the ripple effects of this decision.
Loss of potential revenue
The potential loss of revenue stemming from Applied Materials walking away from its $3.5bn proposed deal with Kokusai Electric is significant for those companies affected. As the largest semiconductor equipment maker, Applied Materials’s decision to leave the deal removes an important long-term revenue source. It leaves their competitors scrambling to fill the void in the market.
The recession of 2020 and pandemic-induced changes to global demand have directly impacted Applied Materials’s finances and decision-making. The company’s restructuring plan, which included selling off assets and cutting jobs saw them raising $960 million in June 2020 to bolster liquidity. However, since preferring to redeploy funds elsewhere, the company has opted out of making such large investments, including walking away from a deal that would have facilitated growth and increased their market share.
This move has created a ripple effect throughout the industry as other competitors face a widened gap between themselves and Applied Materials regarding size and resources. In addition, by choosing not to pursue this lucrative opportunity, Applied Materials frees up capital and competitive advantages for their rivals who may be able to capitalize on former clients’ needs or take advantage of new opportunities created by this decision to dominate within their sector through consolidation or aggressive marketing strategies.
Applied Materials’ decision to walk away from the $3.5bn Kokusai Electric deal may harm their reputation, due to the perception of making an offer then backing out of the deal. When such a large and influential company makes an offer only to walk away from the deal, it can create distrust in the market. In addition, other companies may think twice before engaging in a business transaction with Applied Materials again, as they may be concerned about Applied Materials’ reliability as a partner.
Additionally, Applied Materials’ decision to back out of the deal may cause other large companies to avoid making major deals with them for fear that similar injunctions will be issued and money will be left on the table. Many investors will likely view Applied Material’s decision as unwise and irresponsible, creating another layer of reputational damage. As such, other potential investors looking at potential opportunities with Applied Materials will likely feel uneasy and uncertain about entering into agreements with them. This could ultimately hurt their bottom line as they lose business opportunities due to this reputation damage they have suffered via their decision-making process surrounding this Kokusai Electric deal.
Impact on stock price
When news of the deal breakup between Applied Materials and Kokusai Electric first broke in July 2019, the stock price for Applied Materials dropped significantly – from $54.00 per share to $47.80 per share within a few days. The sharp decline in Applied Materials’ stock price can be partially attributed to investors’ perception of the company’s business strategy and doubt concerning its ability to grow.
This stock price drop is significant compared to recent developments in the technology sector. Recently, many tech stocks have seen a surge of steady increases, with companies such as Apple, Microsoft and Intel all delivering strong growth rates as investors show confidence in technological progress and economic recovery.
As for Applied Materials, there could be long-term and short-term implications associated with the company’s decision to walk away from its multibillion dollar deal with Kokusai Electric. On one hand, investors may feel that the company cannot successfully deliver on major projects and make strategic investments due to its lack of capital or fear of potential losses; on the other hand, they may also see this decision as a sign that it is not willing to bite off more than it can chew or jump into investments that could potentially be too risky financially or strategically. As we look ahead into 2020, monitoring how Applied Materials’ stock behaves will be critical data point around which many technology-focused investors will base their decisions when considering whether or not they should buy shares of this company.
Impact on Kokusai Electric
In March 2019, Applied Materials abandoned a $3.5bn acquisition offer to purchase Kokusai Electric, which shocked the industy.
In this article, we’ll look deeper into the impact of Applied Materials’ decision to walk away on Kokusai Electric, including how it has affected the stock price, customer relationships, and the industry overall.
Loss of potential revenue
The termination of the Kokusai Electric’s proposed acquisition by Applied Materials has devastated the company. The deal, valued at $3.5 billion, would have allowed Kokusai Electric to expand its operations and provide additional customer services. However, without this potential revenue stream, Kokusai Electric has been unable to invest in research and development or hire additional staff, essential components necessary for growth and stability within the tech industry.
Additionally, this drastic decrease in potential revenue will be felt throughout the Japanese economy as well, given that Kokusai Electric is one of Japan’s largest semiconductor manufacturing companies. The value of their stock has fallen 25% since the news was announced and their market share has further declined due to cost-cutting measures concerning research and development initiatives. Furthermore, while they hoped to invest heavily in new technology such as 5G infrastructure through capital obtained from the acquisition, they will now have to take money away from their existing projects or sources such as their profits to maintain their current operations.
Ultimately, it is clear that Applied Materials’ decision has been devastating for Kokusai Electric–not only for their financial future but for the Japanese economy moving forward. Moving forward, it remains unclear what other strategies or deals Kokusai can pursue to move back into solid financial health.
Impact on stock price
In what stunned the markets, Applied Materials abruptly cut their talks to acquire Kokusai Electric in December 2019. After announcing a $3.5bn takeover offer in July 2019, the California-based semiconductor maker and technology leader pulled out of the agreement citing various reasons – principally, concerns around foreign exchange risks and a lack of ‘synergies’ as having impacted their decision.
The immediate impact on Kokusai Electric’s stock price has been significant and could take some time to recover. At the announcement of Applied Materials’ withdrawal, shares tumbled by 10%, with investors incurring immediate losses of ~$630m (YEN69b). In after hours trading that day, the stock continued to fall an additional 2% further wiping out almost $80m (~~JPY9b) in value from Katsuto Murakami’s firm.
From this point onwards, many analysts expect Kokusai Electric’s stock price to remain volatile as investors grapple with regulatory compliance issues and potential legal implications of this unexpected departure by Applied Materials. Moreover, going forward it is likely that any gains made by investors may need to be carefully balanced against likely cost increases in satisfying emerging regulations on foreign acquisitions in Japan – factors that were largely acute during earlier negotiations between both companies before the formal withdrawal notice being sent out by Applied Materials late last year.
Need to find alternative buyers
After Applied Materials’ withdrawal from its planned acquisition, Kokusai Electric must now look for alternative buyers. The Japanese semiconductor maker had accepted an offer to be bought by Applied Materials for $3.5 billion. Still, the US company announced on May 16th that it was pulling out due to antitrust scrutiny raised by the Chinese government. With the deal canceled, Kokusai Electric faces uncertainty over who might be interested in buying or investing in their products and services.
Kokusai Electric is one of Japan’s largest independent semiconductor makers and is considered a leader in developing cutting-edge technology. The company’s innovative solutions have made it a key supplier to major electronics companies like Apple, Samsung and Huawei. They are also a leader in representing Japanese interests in global chip discussions and collaborations such as with China’s Semiconductor Manufacturing International Corporation (SMIC).
Given the strategic importance of Kokusai Electric’s products, there are likely many potential suitors who could fill the role Applied Materials left as either a buyer or investor. US tech giant Qualcomm and Taiwan’s TSMC (Taiwan Semiconductor Manufacturing Company) are among these. Meanwhile domestic competitors include Fujitsu, Hitachi and Toshiba. In addition, foreign private equity firms could potentially leverage their experience investing on behalf of Asian companies to acquire Kokusai Electric’s technology capabilities at a lower cost than what Applied Materials was offering.
Another potential outcome for Kokusai Electric is that it will remain an independent entity at least for now. At the same time, it continues to grow its business operations with existing partners including SMIC and optical engine maker NuFlare Technology Inc., which it acquired control of last April after winning an auction against industry rivals such as Tokyo Electron Ltd..
It remains to be seen what direction Kokusai Electric ultimately goes should they choose not to pursue further deals with either foreign or domestic companies; however one thing is certain — they must act quickly if they want to maintain their competitive edge in global chip discussions and collaborations amidst rapid technological advancement globally.
Impact on the Semiconductor Industry
The semiconductor industry has felt the ripple effects of Applied Materials walking away from the $3.5bn Kokusai Electric deal.
Applied Materials were a major player in the semiconductor space, and their absence from the Kokusai Electric deal affects the industry in many ways.
Let’s examine how this change can impact the semiconductor industry.
Reduction in consolidation
The decision of Applied Materials to walk away from the $3.5bn deal with Kokusai Electric has had far-reaching implications across the semiconductor industry. One of the most noticeable impacts is the reduction in consolidation efforts within the industry. The aborted acquisition would have created a powerful global semiconductor player, with a combined business reaching over ten billion dollars in sales, and presence throughout Asia, Europe, and America. In addition, it was estimated that annual savings from this acquisition could have been up to $500 million per annum. However, those projected results are now delayed or cancelled as Applied Materials has instead taken a step back from this ambitious venture.
This underscores the current uncertainty within semiconductors due to an uncertain political landscape and US-China trade war. As a result, many companies have postponed their merger and acquisition activities including private equity firms and venture capital funds who rely on M&A activity as part of their investment strategies. This deal exhaustion has caused investors to take fewer risks while waiting for further clarity on regulatory impacts before engaging in future endeavors.
The withdrawal of Applied Materials also signals a sea change within traditional supply chains as large companies reexamine their options for expansion into new markets – many preceding mergers entirely as they focus more closely on organic growth opportunities instead of seeking out prospective suitors now that potential cost savings are no longer achievable via consolidation moves like this one with Kokusai Electric Co Ltd.
The ripple effects of Applied Materials’ walk away from Kokusai Electric’s 3.5 billion dollar acquisition deal could potentially result in increased competition in the semiconductor industry. With Applied Materials out of the picture, other companies are free to bid on the same technology and equipment, meaning they can snatch up market share and expand their operations. This increased competition could decrease prices of components and force consolidation among smaller companies, leading to a higher concentration of market power among few giant manufacturers.
Additionally, Applied Materials’ exit from the deal has opened new opportunities for niche players who can offer unique technologies or services that larger firms may have overlooked. With more affordable prices for equipment due to increased competition, these opportunities enable smaller companies to remain competitive and grow alongside big players in the market.
Potential increase in prices
Applied Materials’ withdrawal of the $3.5 billion deal to acquire Japanese chipmaking equipment maker Kokusai Electric has sent shockwaves through the semiconductor industry. The lack of consolidation in the semiconductor market, especially concerning production capacity, is expected to lead to a significant supply disruption and increased prices of certain products.
As Applied Materials previously held a leading role in the market for precision equipment used in chip manufacturing processes, its decision to walk away from the deal signals an extended period of instability amidst an already-supply-constrained market. This could lead to rising prices for silicon wafers and other components required for technologies such as 5G because producers cannot keep up with demand or match supply levels from rival manufacturers.
The ripple effects from Applied Materials’ decision could extend further still, as analysts predict this could cause severe disruptions in the cycle of upgrading foundries, leading to a sizable gap between those who are able and willing to upgrade their facilities and those not able or willing due diminished access or availability of precision machine tools required for such activities.
Applied Materials’ decision to walk away from the $3.5bn Kokusai Electric deal has far-reaching consequences and implications for the semiconductor industry. The ripple effects of this decision have led to increased competition, acquisitions, and a changing landscape for the industry.
To fully understand the implications of this decision, it is important to examine its various ripple effects.
Summary of the ripple effects
This decision by Applied Materials to walk away from the $3.5bn Kokusai Electric deal has had far-reaching implications for both companies and their respective industries.
To begin with, Applied Materials is now exploring other possible opportunities, given that their planned purchase of Kokusai Electric has been terminated. In contrast, Kokusai Electric stock prices have dropped slightly due to the scrapped deal. Additionally, an analysis of Applied Materials’s competitors finds that many of them have seen an increase in stock prices following this news, suggesting that investors expect these companies to move to gain more market share in light of this cancellation.
Other ripple effects include technology giants in the semiconductor industry taking notice and making similar decisions due to the precedent set here by Applied Materials walking away from the merger; this could spell trouble for those who hope to benefit from increased scale economies if they don’t follow suit.
Ultimately, it remains to be seen what further implications this termination will have on both companies and their respective industries over time.
Recommendations for Applied Materials and Kokusai Electric
Applied Materials’ decision to leave its planned $3.5bn deal with Kokusai Electric Corporation has sparked speculation and discussion in the finance sector. This section will focus on two key elements of this landmark decision and provide recommendation for both Applied Materials and Kokusai Electric:
For Applied Materials:
• Assess potential implications of another potential failed deal or withdrawal. Review legal documentation and thoroughly review financial reporting, accounting guidance, and contracts to ensure all terms comply with applicable laws and regulations.
• Re-evaluate the risks of investing abroad in foreign markets, particularly given the current industry climate. Evaluate strategies for mitigating exposure while maintaining sufficient liquidity before future deals.
• Develop protocols for efficiently responding to changes in market dynamics, channels of communication, public relations strategies and other areas related to mergers/acquisitions activity on a global scale.
• Create structure(s) which allow access to critical information quickly when needed while minimizing risk exposure due to data security breaches.
For Kokusai Electric:
• Review existing due diligence process related to the sales transaction process; evaluate long-term performance in terms of actual impact upon stakeholders in terms of profits/losses incurred over a specified periodof time; measure supplier/customer satisfaction rates; assess potential value creation opportunities as part ofmaking sure sales meet sustainability goals; enhance customer relationship management system/programs.
• Seek out potential alternative transactions or mergers partnering with other firms including those from different industries or regions which provide fresh perspectives upon entering any venture despite cultural or other differences may be present (strive toward more diverse workplace & local economic development).
• Implement better risk management & reporting practices which keep stakeholders informed on exposures; assess suppliers’ compliance with standards & regulations regarding labor & working conditions (given most countries have different ones); understand various intellectual property rights protection & enforcement mechanisms around world when making improvements company operations which comply with international standards—will affect acquisition decisions especially when wishing invest outside Japan border (many can put up barriers against foreign takeover).