US electronics components manufacturer Applied Materials has agreed to buy its Japanese rival Kokusai Electric for $2.2 billion. The California-based chip gear maker will be purchasing the company from its current owner, KKR & Co, as part of its move to keep up with the demand for components such as memory chips for 5G infrastructures, 5G mobile phones, and data centers.
The deal comes at an inopportune time as the global chip market continues to decline following troubles brought about by the ongoing trade dispute between China and the United States. The company is, however, confident that the acquisition should yield positive results for the company as it becomes a major player in the space.
Applied Materials mentioned that the deal shouldn't require the approval of the US Justice Department. This means that the agency shouldn't be able to derail the acquisition similar to what it had done when Applied Materials attempted to acquire Japan's Tokyo Electron for $10 billion in 2015.
However, the deal could still face a big hurdle from Chinese authorities, who have recently been very strict when it comes to large acquisitions and mergers in the tech sector. Chinese authorities previously halted Qualcomm's $44 billion attempts to acquire NXP Semiconductors last year.
Given that Kokusai is a relatively small acquisition, getting approval from regulators shouldn't be a problem this time around. Applied Materials CFO Dan Durn did mention during the company's recent call with analysts that the company will still need to seek approval from countries such as Israel, Japan, Ireland, Korea, and Taiwan for the deal to go through.
Applied Materials is looking to take advantage of Kokusai's batch wafer processing tools and its development into ultra-thin films. The market for thin and ultra-thin films has recently gone up as demand for more advanced mobile phones and television sets increased. The market for the particular technology is expected to reach around $115 billion by 2024.
Kokusai currently supplies some big-name companies with its wafer and ultra-thin films. Companies such as Samsung, Toshiba, Micron, and SK Hynix are among its biggest customers. The company reported revenues of around $1.24 billion from its products as of the first quarter of 2018.
Applied Material's acquisition of Kokusai would effectively increase the firm's chipmaking equipment market share from 18 percent to 20 percent, making it a major player in the industry.
The deal is expected to close within the year. Following the news of the planned acquisition, Applied Material's stock prices surged by as much as 2 percent this week.
