RF chip rivals, RFMD and TriQuint, have combined to create a multi-billion dollar industry giant. What does the merger mean for the rest of the industry? Compound Semiconductor investigates.

News of the RFMD-TriQuint merger saw shares spike but now industry waits to see what will happen to each company's fabs. [RFMD]

Described by its leaders as the 'perfect combination for dense RF integration', the recent merger of RFMD and TriQuint, creates a formidable presence in the RF chip industry. With a combined revenue of more than $2 billion, and a stunning portfolio of filters, antenna control, switches and amplifiers - be they GaAs or CMOS - the new company is primed to capture market share in mobile devices, network infrastructure and defence markets.

As RFMD's Bob Bruggeworth - now chief executive of the new business - puts it: "We bring under one roof all the critical RF building blocks necessary to simplify handset and equipment design, reduce size and conserve power while improving system performance. The new company will be a leader in the technologies that are at the heart of what makes mobile, mobile."

And clearly investors and shareholders agree. Amid speculation that the pairing is TriQuint's response to activist investor Starboard Value's suggestion it restructures its mobile power amplifier business and focuses on networks and defence, both RFMD and TriQuint shares have soared. So what next?

Regulatory approval will take three to six months. And as TriQuint's James Klein tells Compound Semiconductor: "We're forming an integration team, from both sides of the companies, that will have to really drive integration... and we will be able to pick the best from each company as we drive this together."

Indeed, in a post-merger announcement conference call Bruggeworth talked about 'blending roadmaps' while TriQuint's Ralph Quinsey emphasised the new company's 'fairly awesome R&D team' twinned with a new-found manufacturing scale, all of which add up to an 'industry-shaping transaction'.



TriQuint's Ralph Quinsey (above) and RFMD's Bob Bruggeworth have emphasised the manufacturing scale the merger will bring. [TriQuint]

The rhetoric is compelling but clearly headcount reductions come first. According to Bruggeworth, the next three to six months will see each business focusing on closing its company with factory rationalisations coming in at the tail-end of this.

And as Klein confirms: "We've been pretty public in that we have more capacity than the industry needs today. We will be rationalising our GaAs capacity now but this isn't necessarily the case for our filter capabilities and some of the other technologies. But for GaAs, we will have to go through a process of how to scale back our footprint."

In the short-term, Eric Higham from Strategy Analytics believes integration of operations for the RFMD acquisition will be a challenge, as it is for any such deal.

"The companies are talking about a pretty quick integration path but the jury is out on when we will see the results of this process, and facility integration and rationalisation," he says. "TriQuint has just been through the process of replicating foundry capabilities from Oregon to its Texas facility, so they would seem to have a handle on this, but then again... you just don't know how much of a challenge this will present."

Assuming swift success, Higham reckons the merger of the two RF chip heavyweights could trigger further industry consolidation. "This could force other companies in the GaAs space to think about consolidation, just from concerns over scale... the scale of the top two companies could limit the size of a second source opportunity," he says.

Indeed, in the recent conference call, both Bruggeworth and Quinsey reiterated the sheer research, manufacturing and product scale their combined companies bring to an industry desperate to meet today's mobile data growth.

"This market is going towards dense RF integration and the suppliers that aren't able to integrate in terms of performance, size and scale will be left not having the right products for sale," says Bruggeworth. "Phones are getting much more crowded and so our roadmap is going towards dense RF integration."

Bruggeworth's words are backed by the recent RFMD launch of RF Fusion, described as a complete front-end solution for global 4G phones and tablets. As the future RFMD-TriQuint company chief executive emphasises: "We're bringing all these features into a small package, it's a full system and that's how we see the industry going."

Industry change

But what does the merger mean to other RF industry players? Higham expects the yet-to-be-named RFMD-TriQuint combo to lead the sector in terms of GaAs and total revenue, jumping ahead of Skyworks, currently at pole position. Meanwhile Avago will remain the fourth largest GaAs manufacturer.

"Avago is a diverse technology company with focuses in many other markets - optical LEDs, automotives - and here, where TriQuint and RFMD don't participate strongly, I see little change," says Higham. "But in the RF space, Avago has concentrated on cellular power amplifiers and will face the issue of scale [following the RFMD-TriQuint merger]."

Higham also believes outsource foundries such as WIN Semiconductor will be eagerly watching the new company's moves in coming months. "Will the inevitable rationalisation of foundry resources hurt them as there is more captive foundry capability or will the new company decide outsourcing is the best way to go?" he asks.

And then there's the impact on rival infrastructure and defence businesses, such as Hittite, Aeroflex and MA-COM. According to Klein, the merger is creating a $500 million 'leader' in these sectors that will, for example, bring in RFMD's SiGe technologies to TriQuint's existing defence and infrastructure strengths.

"We will have a very broad portfolio to address big product areas such as the radar business in defence and next generation optical drivers for fibre networks. This really does drive significant scale for us and will make us even more competitive," he says.

While only time will reveal the true impact of the merger's scale, Klein claims "the first 24 hours have looked really great".

"I'm excited about the scale, the technology and also the limited overlap RFMD and TriQuint has on the defence and infrastructure side," he adds. "I think we're going to make a very powerful combination."