The hot news on the street today is that Taiwan’s electronic component company Yageo Corporation has announced plans to acquire its USA rival Kemet Corporation. Yageo will offer $27.20 per Kemet share, resulting in a total deal of $1.8 billon. (See also: Arrgghh! Parts without Numbers!)
Founded in 1919, Kemet Corporation is an American manufacturer of capacitors, such as tantalum, aluminum, multilayer ceramic, film, paper, polymer electrolytic, and supercapacitors. Kemet also manufactures a variety of other passive electronic components, such as AC line filters, EMI cores and filters, flex suppressors, electro-mechanical devices (relays), metal composite inductors, ferrite products, and transformers / magnetics.
The product line consists of nearly 5 million distinct part configurations distinguished by various attributes, such as dielectric (or insulating) material, configuration, encapsulation, capacitance (at various tolerances), voltage, performance characteristics and packaging.
Meanwhile, Yageo Corporation, which was founded in 1977, is a leading global electronic component company with capabilities on a global scale, including production and sales facilities in Asia, Europe and the Americas. Yageo corporation provides one-stop-shopping, offering its complete product portfolio of resistors, capacitors, wireless and circuit protection components to meet the diverse requirements of customers.
So, what does all this mean? On the one hand, this will increase the global footprint of both companies, but is this a good deal for the US in the long term? Remembering that Kemet’s components are key elements in a wide range of markets — including computing, telecommunications, medical, aerospace defense, and automotive — is it really a great idea to have all of Kemet’s technology and intellectual property (IP) owned by another country?
In two recent columns on US-China Tariffs, Trade, and Technology (see Part 1 and Part 2), we discussed how, based on his deep understanding of international trade (“Nobody knows more about trade than me”), one of the first things President Trump did upon taking office was to withdraw the US from the Trans-Pacific Partnership (TPP).
More recently, President Trump has instigated multiple rounds of tariffs on countries around the world, including Europe and Asia. On this basis, another possibility is that the acquisition of Kemet may provide a way for the non-US Yageo to bypass President Trump’s tariffs.
I asked an industry expert friend (who shall remain nameless) for his thoughts on this, and he replied as follows:
My biggest concern is one of a verifiable supply chain. Kemet was a US company that produced passive components that are used in a lot of hardware, automotive and green technologies. Yageo is ostensibly a Taiwanese company. However, they have large holdings on the mainland and are therefore subject to PRC laws requiring cooperation for “national security.” Having Yageo buy Kemet means that, at some point, they can shut Kemet down and use it as a front for shifting mainland China produced parts to the US, relabeling them and selling them as US produced parts, thereby resulting in a loss of control for US manufacturers and a general reduction in the supply of verifiably unadulterated parts. So, while I’m sure that the stockholders of Kemet are happy, I’m not convinced that anyone else should be. But, then again, I tend to be more paranoid than most.
As a very speculative aside, once the Chinese government has stopped making a mess of Hong Kong and stomped it into the ground, it’s not beyond the bounds of possibility that China will finally turn its attention to dragging Taiwan back into the fold.
If so, this has the potential to turn into WW3 (or at least, WW2.5), in which case who knows how US-Taiwan trade will work, and who would dare to predict the future of any Taiwanese-owned US companies?