Two giant semiconductor equipment manufacturing companies -- Applied Materials and Tokyo Electron -- have called off a merger plan that would have created an industry colossus.

In the face of U.S. antitrust objections, the companies issued news releases Monday saying the $10 billion deal --- a year and a half in the making -- was not to be.

The critical hurdle the merger couldn't leap was the U.S. Justice Department, a surprise to some who expected resistance to come from Chinese and South Korean regulators.

Companies that make equipment for semiconductor factories are facing a dwindling number of customers, as consolidations in the face of soaring costs involved in operating chip-making "fabs" or factories.

Only a handful of companies still run large fabs, including Intel, Taiwan Semiconductor in Taiwan and South Korea's Samsung.

Several analysts said the Justice Department appeared to be more concerned about the impact on future innovation, rather than current operations.

"They have to consider the future pipeline of products in the approval process," said Mark J. Heller, an analyst with CLSA.

Now the two companies will return to their battles for sales.

"We expect fierce competition between the two companies that, ironically, were planning to be 'one happy family' upon merger closing," Susquehanna Financial analyst Mehdi Hosseini said in a note about the failed deal.

It would have been the biggest deal for a Japanese company by a foreign competitor in years, and would have created a company with combined sales of about $15 billion, based on 2014 revenues.

Applied Materials is No. 1 and Tokyo Electron No. 3 in the industry.

Applied Materials employs about 14,000 worldwide and had revenue of $9.1 billion in 2014. Tokyo Electron employs about 12,000 and had sales of $5.9 billion in 2014.

Applied Materials said the Justice Department turned thumbs-down on the companies' proposals to meet regulators' objections to the proposed merger.

The Santa Clara-based company said it had been told by Justice Department officials that the measures "would not be sufficient to replace the competition lost from the merger."

"We viewed the merger as an opportunity to accelerate our strategy and worked hard to make it happen," said Gary Dickerson, president and chief executive of Applied Materials, saying he was "disappointed" but moving ahead with the company's growth plans.

Tokyo Electron said the two companies "have devoted their best efforts" for the combination. Tokyo Electron shareholders approved the merger last June.

The companies were hoping that synergies realized by the merger would help them cut costs.

There would have been some savings in research-and-development costs, said Heller of CLSA. "It is becoming a lot more difficult and expensive to keep perpetuating Moore's Law," which predicts that transistor densities on integrated circuits will double every two years.

The companies intended to register in The Netherlands, which would have saved them tens of millions of dollars, while retaining Applied Material's headquarters in Santa Clara.

By: DocMemory
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