According to a recent report by Reuters, Texas Instruments announced that it will acquire Micron Technology's Lehi, Utah (Lehi) plant for US$900 million to increase its production capacity. It is reported that after the completion of the acquisition, Lehi fab will become TI’s fourth 300mm (12-inch) fab.

Looking back at TI’s acquisition history, the two typical acquisitions were in 2000. They consolidated its dominant position in the field of data converters and amplifiers through the acquisition of Burr-Brown. In 2011, TI spent 6.5 billion US dollars to acquire National Semiconductor (NS), which established their position in the analog chip market.

From the perspective of these acquisitions, TI's acquisitions can always bring them breakthrough development. So, what are the mysteries behind TI's acquisition of the 12-inch wafer fab?

Open the 12-inch era of analog chips

For the analog chip industry, TI is the first to open the door for 12-inch analog chips, and this acquisition may be able to promote the entire analog chip industry to the threshold of 12-inch production.

Since 2009, TI has been improving its 12-inch manufacturing capabilities and initiated a series of mergers and acquisitions-including the acquisition of its largest 12-inch wafer fab in the United States from Qimonda in 2009. According to the report, this is the first step of the second phase expansion of TI Richardson wafer fabrication facility (RFAB), which is also the industry’s first 12-inch analog wafer fab.

Since then, TI has also strengthened its analog position by transitioning to 300mm manufacturing capabilities in its newer RFAB and older DMOS 6 fabs.

In order to further expand its production capacity in 2010, TI acquired two fabs in Aizuwakamatsu, Japan. One can be used for 200mm production, and the other can be used for both 200mm and 300mm production.

In April 2019, TI announced a plan to build a 12-inch wafer fab, with an estimated investment of US$3.1 billion. According to their plan, this fab will complete the construction of the factory by 2021 and start operations in 2024.

The Lehi wafer fab acquired this time is after the completion of the transaction. The Lehi wafer fab will become TI’s fourth 12-inch wafer fab after DMOS6, RFAB1 and the upcoming RFAB2.

From the perspective of TI's layout, they have been in the production of 12-inch wafers for more than ten years. In the past ten years, their analog products produced with 12-inch wafers have also flowed into the market. According to related reports, TI’s first 12-inch wafer fab started production at the end of 2010. . According to TI’s vision at the time, after the completion of the first stage of equipment installation and mass production, the total value of the factory’s annual analog chip shipments will exceed 1 billion US dollars. In addition, TI announced that the new plant was also reported by the media last year that it has gradually entered the start-up phase.

From the perspective of TI’s competitors, take ADI, which ranks second in the analog chip market, as an example. In fact, they also carried out a transformation of their wafer fab in 2009. Its fabs in Wilmington, Massachusetts, USA and Lee Lee Merrick's factory is the object of their transformation. According to related reports, ADI’s Limerick plant has all been converted from 6-inches to ADI’s high-capacity 8-inch wafer foundries.

From the perspective of this process, TI's layout in this area has far surpassed other competitors.

Although the current supply of 8-inch wafers continues to be tight, for the 8-inch production line that has existed in the market for many years, its dividend is approaching the afterglow of the setting sun. Switching to the 12-inch production line may be the path that more IDM companies choose. Under this circumstance, TI’s acquisition may lead analog chip manufacturers to start large-scale 12-inch production lines.

12 inches is the key to ensuring high gross profit

As a global leader in analog chips, high gross profit is one of the secrets for TI to maintain its market position.

Switching to a 12-inch production line is also their way to ensure high gross profit and profit in the future.

Therefore, in addition to building a 12-inch production line for analog chips, TI is also reducing its expenditure on 6-inch wafers. At last year’s financial report meeting, TI stated that it would close its last two 6-inch wafers in the next few years. Fab. Dave Pahl, Director of Investor Relations at Texas Instruments, once said: "About US$1.5 billion of products are produced in these two 150mm fabs each year, and a large part of it will be transferred to the 12-inch fab to increase productivity and economic efficiency."

Why is it directly transferred to the 12-inch? This question can also be glimpsed from TI’s information in its financial report meeting. The company has said that the output of the 12-inch wafer fab is higher than that of the 8-inch process used by competitors. Chips are 40% cheaper. In addition, for analog use, the return on investment of a 12-inch wafer fab may be higher because it can be used for 20 to 30 years.

According to the data of Southwest Securities cited in previous reports from the Semiconductor Industry Observation, from 2013 to 2018, TI's gross profit margin rose from 56.9% to 65.1%, while ADI's gross profit margin rose from 63.9% to 68.3% during the same period. At the same time, thanks to the well-controlled R&D expense ratio and declining sales and management expense ratio, Texas Instruments’ EBIT margin in recent years has risen from 30.3% in 2013 to 42.5% in 2018, which is significantly higher than ADI (2018: 30.3 %).