SPIL is the world’s third largest semiconductor assembly company and supplier of testing services (approximately 10%), and ASE is the largest world’s largest. If the two companies are consolidated it will be a step forward in expanding their market share, and having greater room for price negotiations and technological growth will be beneficial for both the two companies and Taiwan’s semiconductor industry as a whole.

However, SPIL rejected ASE’s bid for the following four reasons: the purchasing price was unreasonable, the motives behind the acquisition were unclear, it would have been detrimental to SPIL’s shareholders, and prior to the acquisition announcement SPIL had not been notified. Simply put, the price was too low, and they were not respected during the acquisition process.

If it was a question of price, both parties could have engaged in negotiations and coordinated a price that they would have found mutually acceptable. However, the two parties did not communicate and SPIL instead relied on Foxconn and allowed them to become their largest shareholder as a calculated maneuver to embarrass ASE.

From Foxconn’s perspective, their conglomerate is enormous and they have a broad range of operations. Furthermore, they will be able to gain the most outstanding clients in the world and enter a the third largest chip packaging company in the world, while consolidating in a manner that will be favorable to their existing clients. Taiwan’s Economic Daily News pointed out that if SPIL merges into Foxconn they may be able to obtain packaging business from Apple and through A10 processors.

However, it is difficult to say whether or not this is truly such an ideal state of affairs.

We should observe Innolux today, which used to be called Chi Mei Optoelectronics and merged with Foxconn approximately five years ago. After the merger, it definitely gave Foxconn more space to do business, and Innolux also achieved greater production capacity. However, from the perspective of industrial and technological innovation, Innolux now offers nothing exciting. More importantly, Innolux is still not the supplier for Apple.

However, from the standpoint of the ultimate profit ratios, Foxconn and brand name companies are the winners in the end. The brand name companies improved their situations and got lower cost products, while Foxconn won more OEM orders. Meanwhile, the remaining component providers and technology service companies are still continuing to struggle for increasing profits.

There is a Chinese proverb: “While the mantis is catching a cicada, a sparrow is sneaking up from behind,” meaning that people should not just pay attention to the profits in front of their eyes. They also need to be careful of the more powerful opponents that may be lurking behind them in the background. Similarly, we could think about this acquisition case in terms of a broader scope.

(TR/Phil Sweeney)