MADISON, Wis. — If you haven't heard of Japan's MegaChips Corp., you'd better watch out. Japan's fast-growing fabless chip company may come knocking on your door, just as it did to SiTime Corp., a Sunnyvale, Calif.-based MEMS and analog fabless vendor.
The two companies announced on Tuesday, October 28, a definitive agreement under which Osaka-based MegaChips will acquire SiTime, a leader in the MEMS timing market for $200 million in cash.
The deal marks the largest acquisition of a venture-backed semiconductor company in 2014, according to SiTime.
Describing MegaChips as "truly entrepreneurial, innovative and responsive," Piyush Sevalia, SiTime's executive vice president of marketing, told us, "Everyone in our company is really excited about this deal." It was MegaChips "who found us," and initiated discussions, said Sevalia.
MegaChips, which develops SoCs and application-specific standard products that go into networking devices, gaming and digital cameras, have recently gotten into the development of sensor hubs and sub-GHz wireless technology. SiTime sees its own MEMS timing device product line as a natural fit for MegaChips' product portfolio for wearable and handheld devices.
Without divulging details, Sevalia said, "We've been pleased to find out that MegaChips' roadmap for the next six to nine months are very well aligned with ours."
MegaChips, founded in 1990, have been steadily gaining reputation as a rising star in Japan, especially over the last several years. While growing the company organically, it's been also engaged in a series of M&A activities. In 2012, MegaChips acquired 100 percent stake in Kawasaki Microelectronics, Inc.
MegaChips is Japan's only chip company to make the cut among the top 25 fabless chip companies listed by IC Insights. The company has worldwide revenues of more than $600 million.
The rise of MegaChips marks a sharp contrast to many leading Japanese integrated device manufacturers who have struggled with the transition to fab-lite operations as they've lost momentum through poorly executed consolidations.
Why SiTime? SiTime, obviously, isn't alone in the MEMS oscillator business. Its competitors in MEMS timing include Discera which was acquired by Micrel at the end of August, Silicon Labs, and several others.One of the biggest stories in the MEMS market in recent years is consolidation.
Tony Massimini, chief of technology at Semico Research, noted such M&A examples in MEMS market as VTI Technologies bought by Murata, InvenSense's acquisition of ADI's microphone business and Movea.
"A company can spend 3 to 4 years to develop a MEMS technology or it can get into the market right away via an acquisition," said Massimini. The MegaChips deal seems to be a case of the latter.
But, really, how fast is the MEMS timing market growing and how big a market share does SiTime have?
Semico's Massimini estimated the MEMS timing market at about $120 million in 2014. He predicts that by 2017 it will reach $466 million.
Marwan Boustany, IHS senior analyst for MEMS and sensors in mobile and consumer technology, pegged the 2014 market at $48 million. IHS is forecasting a compound annual growth of 78% to 2018, expecting the market to grow to $480 million in 2018.
Either way, the two market research firms agree that SiTime holds a lion's share of the MEMS timing market.
Massimini sees SiTime with about a 48% share of the MEMS timing revenues and an 80% share in the unit basis. IHS believes SiTime's revenue share in 2013 was 69%. SiTime's biggest competitor is Discera which had a 29% revenue share in 2013, according to Boustany.
Timing devices in wearables The success of SiTime thus far appears triggered by its first mover advantage. SiTime "got into the MEMS oscillator market first," said Semico's Massimini, and has "a proprietary manufacturing process, which the company sees as a differentiating factor."
He added, "It's possible that this IP along with its strong position in a market that is poised for high growth is attractive to MegaChips."
Obviously, as Massimini pointed out, "timing is critical for all electronics." Compared to the traditional quartz-based devices, MEMS oscillators are scalable, resulting in lower cost and smaller size. MEMS oscillators are also programmable.
SiTime's Sevalia explained that timing devices are important to bringing "common time, precision, and reliability" to data measured by various sensors getting consolidated inside wearable and mobile devices. Since quartz-based devices can't fit into very small wearable devices, the MEMS timing solution -- smaller and lower power -- is "likely to enhance Megachip's product offerings," especially for wearable and mobile devices, according to Massimini.
More specifically, Massimini noted that in June 2014, SiTime announced a new product line aimed at wearables. "According to SiTime, their solution has half the power consumption of quartz and is 85% smaller. The product also has better frequency stability which extends battery life," he noted. "In speaking with SiTime, they believe they have a two year lead on their competition for this type of solution."
Upon closing, scheduled for November 2014 pending regulatory approvals and customary closing conditions, SiTime said that it will retain its name and operate as a wholly owned subsidiary of MegaChips.