Chipmakers pay up for the bottlenecks around AI processors

The largest technology takeover of the week was not about the processors at the centre of artificial intelligence but about the parts around them. On 2 November Marvell Technology agreed to buy Lumentum, which makes the lasers and optical components that carry data between AI chips, in an all-stock deal valued at US$115bn including debt. The same day onsemi agreed to pay US$600m in cash, plus up to US$175m more on revenue milestones, for Ferric, a developer of voltage regulators that sit next to AI processors. On 4 November AMD put a US$2.9bn value on its pending purchase of Taalas, a developer of specialised inference silicon, and Reuters reported that Japan Investment Corporation planned to sell JSR, a maker of the photoresists used to print circuits on wafers, to Mitsui Chemicals for more than ¥1.3tn.

The deals differ in size and kind, but they rest on the same idea. As data centres link ever larger numbers of chips, the pressure points move to the components that shift data, deliver power and make the chips possible in the first place, and buyers want to own them.

Marvell's once-in-a-generation bet

Lumentum shareholders will receive 4.5 Marvell shares for each share they hold, worth about US$1,132 and a 23.9% premium to the 28 October close, before Bloomberg News first reported the talks. Reuters put the equity value at about US$102.5bn, more than half of Marvell's market value and more than ten times its previous largest purchase, the US$10bn acquisition of Inphi in 2021. Marvell holders will own about 67% of the combined group. The companies are targeting more than US$1bn of annual run-rate cost synergies, describe a combined addressable market of US$550bn and expect the deal to add to Marvell's adjusted earnings per share in its first year. Completion is not expected until the first half of 2028.

Marvell chief executive Matt Murphy said AI infrastructure was moving towards optical connectivity, an opportunity that comes along once in a generation. Lumentum brings lasers, optical transceivers, optical circuit switches and indium phosphide manufacturing. Light Reading reported that both companies argue that as optics move closer to the processor, lasers, drivers and signal processors will need to be designed together, so customers will want pre-validated optical engines from one supplier. Reuters said the deal could strengthen Marvell's challenge to Broadcom, and noted that Nvidia invested US$2bn in each company earlier this year.

Investors were less enthusiastic. Marvell shares fell more than 10% on the day and Lumentum's more than 15%. Reuters calculated, using LSEG data, that the price values Lumentum at about 33 times projected core operating profit for the next 12 months, more than double the peer median of roughly 16 times. Stifel estimated that the fall in Marvell's shares cut the offer to about US$824 a Lumentum share, or roughly US$84bn, at midday prices. A Bloomberg Opinion column called it a terrible time for such a deal, given growing market unease about the economics of AI. Marvell would owe Lumentum US$5.8bn if it walked away, and Lumentum would pay US$3.2bn if regulators blocked the deal.

Power, inference and the edge

Ferric's integrated voltage regulators move power conversion into the processor's package or substrate, which onsemi says cuts board area by 50% to 70% compared with conventional regulators and leaves more of a system's power for computing. Ferric has more than 40 patents and about 50 staff. onsemi raised its 2030 AI data centre revenue target by US$500m to more than US$3bn alongside the deal, while warning of no meaningful near-term financial impact. It expects to close by the end of 2026.

AMD disclosed the Taalas price in its quarterly filing rather than at signing. The cash-and-stock deal includes up to about US$1.4bn of contingent consideration, nearly half of the headline value, and is expected to close by the end of 2026. Analog Devices, meanwhile, completed its purchase of Alif Semiconductor on 3 November. Reuters reported in September that ADI would pay US$1.35bn in cash upfront and up to US$200m in contingent payments for Alif, whose low-power processors combine AI computing, sensor data, connectivity and security, as AI applications spread into physical devices.

Earn-outs and contingent payments run through all three smaller deals. For buyers paying for technology that has yet to generate much revenue, tying part of the price to results is a way to share the risk with sellers.

Materials join the queue

The JSR sale carries the theme into chip materials. JIC, the state-backed fund overseen by Japan's trade ministry, took JSR private for about ¥900bn two years ago, saying it would use the company to drive consolidation in semiconductor materials. According to Reuters, JIC now aims to take advantage of higher valuations for chip-related businesses during the AI investment boom.

Mitsui Chemicals initially said it was considering several options but had made no decision, and its shares fell 13% after the report. On 9 November it signed an agreement with JIC Capital funds to buy JSR for ¥1.84tn including debt, with the Development Bank of Japan investing ¥200bn in non-voting preferred shares. With a market value of about ¥800bn, cash of ¥217.8bn and interest-bearing debt of ¥876.4bn at the end of June, it would be taking on a target bigger than itself. Akira Minamikawa of Omdia told Reuters that the materials market was growing quickly, particularly because of AI, and that companies which stay small risk being unable to serve it.

None of the week's pending deals has yet closed, and the largest will not do so for well over a year. The sharp share price falls at Marvell and Mitsui Chemicals suggest investors accept the logic of owning AI's bottlenecks but remain wary of the prices being paid for them.