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Now the hard work begins

Infineon CEO Reinhard Ploss may have a tough job convincing investors that the biggest deal
in the German company’s history will work.

Infineon is to acquire Cypress Semiconductor and the move comes at a time when the wider industry is facing strong economic headwinds.

Despite a strong performance being forecast for the automotive, communications and industrial segments in the coming years, a collapse in the memory market and a slowdown elsewhere, means that the IC industry is expected to slow over the coming years.

That’s the background to Infineon’s decision to buy Cypress, in a deal that values the company at $10billion.

Ploss is now in the US lobbying for what is the biggest deal in the German company’s history, and it’s likely that he will be doing a lot more traveling and explaining over the coming weeks. The reaction to the announcement has been muted, to say the least.

Doubts are being raised not only about the high price of the deal but at its timing – not only is the chip market slowing but the US - China trade spat is beginning to have a serious impact.

Ploss believes the deal will supercharge sales and told a meeting with senior managers at Cypress that the two companies are a “perfect fit” and that their complementary product lines will create opportunities for much faster growth, benefiting employees and shareholders alike.

If he can get the deal passed it will be a significant achievement for Ploss who failed in his attempts to buy Wolfspeed from Cree in 2017, when the deal was blocked by the US authorities on national security concerns.

Since then the company has been little more than a bystander as the semiconductor industry has been reshaped.

Should the deal proceed it will catapult Infineon into the top 10 of global chipmakers and create a local technology champion in Europe, capable of taking on US and Asian giants.

When you look at the markets these two companies operate in the acquisition does make sense, what will be a concern is how Ploss goes about integrating these very different companies and delivers the synergies he’s promised – it wont be an easy sell to sceptical investors.

The deal is very expensive and Ploss has admitted that.

With a series of recent profit warnings, if this doesn’t work, Infineon might end up being a take-over target itself.

Neil Tyler

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