But more importantly, automotive is a highly concentrated market, with 95% served by the top five suppliers, according to Yole. Yole lists Sony (21 percent), Omnivision (19 percent), Samsung (18 percent), Canon (9 percent) and Aptina (8 percent) as the top five CMOS image sensor vendors ranked by 2012 market share. The market research company said earlier this year that the top three had 58 percent of a $6.9 billion market in 2012.
CMOS image sensor vendors ranked by 2012 market share.
(Source: Yole Development)
The movement for a fab-light or fabless trend is also changing the CMOS image sensor suppliers’ business models and their strategies.
Companies such as Aptina and STMicroelectronics are “stuck with limited volumes and struggling due to fierce competition from both high-end players and very low-end players,” Yole observes. They need to “outsource or co-develop their leading-edge production, as their volumes are not high enough to invest in the prohibitively expensive infrastructures.”
Beyond a dramatic change in their business models, “these players also move to higher-end applications and out of the traditional mobile phone market,” according to Yole. In short, everyone is looking to the automotive and industrial segments as their road to profitability.
Financial community responds
ON Semiconductor expects the acquisition to have immediate impact on its earnings.
Based on unaudited results, Aptina’s revenue for the 12 months ended May 29, 2014, was approximately $532 million with gross and operating margins of approximately 29 percent and 3 percent, respectively.
The investment community favorably responded to the news. Sterne Agee analyst, Vijay Rakesh, raised estimates and the price target for ON Semiconductor after it acquires Aptina. He sees it positive, as the acquisition is done at attractive valuations. He wrote in his research note that ON Semiconductor is paying “~$400 million for Aptina or ~0.75 x price to sales on trailing twelve-month revenues of ~$532 million, using cash on the balance sheet and also drawing down on its revolver.”
The analyst also likes that Aptina, in the past 12 months, derived 46 percent of its revenue from the auto/industrial sector. He added that “Aptina has a robust IP portfolio with over 2,000 patents issued or pending.”
More importantly, the analyst is hopeful for synergies and operational leverage in the future after the acquisition. Rakesh wrote: “Synergies will come from overlap in general and administrative, and operations. ON Semiconductor is not expecting to reduce R&D, as that is a key element for growth. Gross margin for auto and industrial at Aptina is above ON Semiconductor’s corporate average and the other averages are below.”
Meanwhile, Deutsche Bank Equity Research issued a similarly favorable note, but with some caution. Ross Seymore, Deutsche Bank analyst, maintaining its Buy rating, pointed out his caveat. “Given the company’s difficulties in integrating SSG/Sanyo, we expect investors to remain dubious as to this deal’s value creation until the company shows meaningful traction toward its accretion targets.”
— Junko Yoshida, Chief International Correspondent, EE Times