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Published on : Jun 26, 2014

In a deal that could potentially change the current shape of the chip manufacturing industry in Europe, AMS AG is discussing an acquisition of Dialog Semiconductor Plc. The deal, if successful, could create a massive European chipmaker worth a USD 5 billion market value.

AMS currently manufactures chips that enable smartphone users to adjust colors and brightness on their phone displays. As per takeover rules that prevail in the United Kingdom, AMS will have to make an official announcement by July 24 about whether or not it will proceed with an offer. The company, based in Unterpremstaetten, Austria issued a statement informing the media about this development on Thursday. The two companies confirmed ongoing talks between them for a possible merger in two separate releases issued by them. Stocks of both companies spiked on the news.

Dialog’s chips are primarily used in smartphones for regulating power consumption. The new company that would be formed by the merger could look at tapping new opportunities in a market where inter-connected devices are becoming increasingly popular. This has propelled the demand for semiconductors over the past few years. Both companies are suppliers to tech giant Apple Inc, who uses these components in its iPads and iPhones.

Analysts expect the combined revenue of both chipmakers to be worth USD 1.7 billion in 2014, which would mark a 21% increase from 2013 revenues. Considering that the product ranges of both companies complement one another, a merger could put them in a position to offer a massive range of products and also share costs of development. Both companies are currently highly dependent on Apple, and a merger could help them diversify their customer base.