Tomahawk, WI 9/25/2013 (BasicsMedia) – Applied Materials, Inc. (NASDAQ:AMAT) is a major manufacturer of equipments, software and services which are used in a number of industries. The major industries which are served through these products developed by AMAT include the makers of flat panel displays, solar photovoltaic, and global semiconductors. The company has now decided to invest in buying Tokyo Electron Ltd. This news has attracted a lot of interest with people stating that the company could become one titan and be a dominant force in this industry. How valid is this statement?

 The money which AMAT will spend in buying Tokyo Electron Ltd is presumed to be to the tune of $7 billion. This is money which is presumably going to be well spent bearing in mind that while AMAT is the number one company in terms of chip making, Tokyo Electron Ltd is ranked third in this industry. This is quite strategic for two reasons. The first is that the two companies have been struggling to make profits, due to factors which affect this industry as a whole. Secondly, this investment will create a company which is valued at not less than $29 billion.

 AMAT to Own 68%  of the New Company

 The new company which emerges out of this deal, will be 68% owned by AMAT. This deal is also reputed to be the second largest ever in the history of Japanese companies which have been purchased by foreign companies. The only deal which overshadows this one involving the purchase of a Japanese company was Citigroup’s acquisition of Nikko Cordial Corp for around $7.9 billion, and which happened in 2007. This deal hasn’t been concluded as yet, but I don’t expect any problem to arise as regulators scrutinize everything regarding the two firms.

The three major players in this chip making industry include AMAT, Tokyo Electron Ltd and ASML Holding NV, a Dutch company. However, the three firms have struggled in the recent past to turn in profits and this has become a major source of concern for shareholders and analysts alike. Therefore, it is against this background that AMAT has seen it fitting to enter an agreement with Tokyo Electron Ltd to own 68% shares in the latter.  This way, both companies are assured of continued presence in this industry and have a better chance of making profits.

 AMAT’s Acquisition of Tokyo Electron Ltd Not the First in the Industry

 This deal isn’t new in the industry. Acquisitions and formation of alliances has become the norm in this industry as the demand for semi conductors keep reducing. Developing chips which are considered cutting-edge and of the best quality, is increasingly getting quite expensive and beyond the reach of most of these companies. Therefore, the companies such as AMAT and Tokyo Electron Ltd are left with no other choice other than to embark on such mergers, buyouts, and forming alliances. Several chipmakers in the U.S have already been forced to close shop.

 The two companies have gone through similar experiences in the last two years. While AMAT has seen its net income continues reducing, and has even reported losses in two of the quarters during the same period, Tokyo Electron Ltd has seen a 23% reduction in its report regarding quarterly sales as at July 2013. This new deal has the capacity of helping the two companies get out of losses and dismal sales as well as decreasing revenues into a period of profit making. But I believe that for this to happen, the two have to be given ample time to turn the situation around.

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