August 16, 2011 - Taiwan's Sino-American Silicon Products (SAS) is acquiring Japan's Covalent Materials' (née Toshiba Ceramics) semiconductor wafer business for $451M (¥34.7B) in a bid to expand its profile among global wafer suppliers.

The Covalent wafer business, representing roughly half of Covalent's overall operations (the company will keep its ceramics business), is said to be the sixth-largest global supplier of semiconductor silicon wafers, with products ranging from 5-in. SOI to 200mm polished and epi to 300mm, three domestic silicon wafer operations (Tokuyama, Sekikawa, and Oguna), and about 1400 staff. Formerly Toshiba Ceramics, it was spun out in late 2006 (finalized in early 2007) via $509M management buyout with support from Carlyle Group and Unison Capital.

The move thrusts SAS directly into the market for semiconductor wafers, adding key wafer technologies particularly for power ICs and discretes. SAS says the deal "greatly enhances the scale and technology" of its semiconductor wafer operations, and offers a more fully integrated production process to improve efficiencies. It also opens doors to "several Tier-1 customers" in Japan, the US, Europe, and Taiwan. Financially, SAS projects the acquisition "should be earnings and cashflow accretive" in the first full year after closing. SAS group president Doris Hu pointed to the company's 2008 acquisition of American Globitech that tripled revenues and doubled profits, as reason for confidence that a SAS-Covalent combination will work.

SAS, which still needs shareholders' approval, also is in discussions with its principal bankers on a new syndicated loan to fund some or all of the debt-free acquisition. Carlyle Group reportedly was pushing for a sale of the wafer business, so the company can turn its focus to its ceramics business e.g. for industrial machinery and semicap equipment. (The PE firm wouldn't tell whether or how much it is profiting from the sale.)

The Nikkei, which puts Covalent's marketshare at about 5%, notes that price wars and R&D expenses are undercutting profits at wafer manufacturers (market leaders Shin-Etsu and Sumco included). For its part, Covalent posted consolidated net losses exceeding ¥15B in both fiscal 2008 and 2009, and in its most recent fiscal year (ended March 31) squeaked by with a 1.2% operating margin (¥500M) on ¥41B in sales. Comparatively, SAS' solar panel business posted about ¥60B in 2010 sales, says the paper.


Top 10 merchant silicon and epitaxial wafer manufacturing companies, in US $M revenues. (Source: Gartner)