WT Microelectronics, the leading chip distributor, has made another move

01

Why did WT Microelectronics and Nichida Electronics exchange shares?

According to the press release of the major information disclosure press conference announced by WT Microelectronics, WT Microelectronics and Elite Advanced Material will mutually issue new

 shares through capital increase to accept the new shares issued by the other party. The share exchange ratio is approximately 0.668 shares of WT Microelectronics common stock for every 1 share of

 Elite Advanced Material common stock. Upon completion of the share swap, WT Microelectronics, including its originally held 31,000,000 shares of Elite Advanced Material common stock, will

 collectively hold approximately 36% of Elite Advanced Material's common equity. Meanwhile, Elite Advanced Material, including its originally held 11,000,000 shares of WT Microelectronics common

 stock, will collectively hold approximately 5% of WT Microelectronics' common equity. Both parties will maintain their independent operations.

In fact, this is not the first collaboration between WT Microelectronics and Elite Advanced Material. In October 2022, WT Microelectronics invested NT$1.32 billion to acquire shares in Elite Advanced

 Material, holding approximately 14.58% of its equity after a private placement, thereby becoming its largest single shareholder. However, WT Microelectronics did not actually join the board or involve itself in management rights. At the time, WT Microelectronics stated that the strategic partnership would enhance the operational performance and profitability of both companies.  

Public information shows that Elite Advanced Material is Taiwan's largest passive component distributor. Established in 1993 and listed in 2007, it primarily distributes passive

 components such as multilayer ceramic capacitors (MLCCs), electrolytic capacitors, and solid-state capacitors, as well as semiconductor ICs and LEDs, with semiconductor ICs

 accounting for about 19% of its revenue. The company's 2024 revenue reached NT$12.141 billion.  

Elite Advanced Material represents brands including Nippon Chemi-Con (the world's largest aluminum electrolytic capacitor manufacturer), Panasonic, AVX, Kemet, Samsung,

 Kyocera, as well as Everlight and Genesys Logic. Its products are widely used in notebooks, motherboards, servers, power supplies, solar energy, inverters, smartphones, and

 networking equipment. In recent years, the company has expanded into emerging markets such as medical, automotive, industrial control, and military applications. It has

 established operations in Hong Kong, Shenzhen, Suzhou, and Wuhan, and continues to expand its presence in China and across Asia.  

This share swap undoubtedly marks a further upgrade in the partnership between the two companies.  

A "share swap" refers to an economic arrangement where companies exchange shares—rather than using cash—to acquire each other's equity for strategic purposes, forming a

 business alliance. Such transactions typically have several key motivations:  

1. Forming a strategic alliance to drive business growth

2. Defending against hostile takeovers 

3. Mutual market support to stabilize stock prices

The share swap between WT Microelectronics and Elite Advanced Material aligns primarily with the first scenario—deepening strategic cooperation. Not only does it reduce cash

 pressure, but it also makes both parties shareholders of each other, allowing them to share in future growth dividends.

WT said that the company is a leading global distributor of electronic components, and NEC is the largest distributor of passive components in Taiwan, China. The overlap of the

 two parties' product lines is extremely low. Through this stock swap alliance, the two parties will further deepen their strategic cooperation relationship. Through this

 cooperation, the company can expand its market layout in passive components.

NEC said that on the basis of further deepening the strategic cooperation relationship between the two parties, this cooperation allows NEC to further expand its market footprint

 by leveraging WT's rich experience in logistics integration (WT's mature global supply chain management system) and its extensive global customer base.

WT and NEC jointly stated that the cooperation between the two parties in the field of passive components can better serve global suppliers and customers, thereby improving the

 operating performance of both parties and creating shareholder value.

According to Taiwanese media reports, WT's shareholding in NEC has increased to 36%, further widening the shareholding gap with Shiyou Investment, the second largest

 shareholder of NEC and chairman of WPG Chairman Huang Weixiang. According to WT Microelectronics' latest annual report, if the number of shares held by other shareholders

 remains unchanged, Nichia will become the fourth largest shareholder in the future, second only to ASMedia, WPG, and Shaoyang Investment under WT Microelectronics Chairman Zheng Wenzong.

It is worth mentioning that WT Microelectronics has used stock swaps to conduct strategic defense. In 2020, in order to cope with WPG's acquisition, WT Microelectronics reached

 a stock swap cooperation with IC design company ASMedia Technology. After the stock swap was completed, ASMedia and WT Microelectronics held a total of more than 30% of the shares, while WPG only held about 23%. Under this wave of operations, WT Microelectronics has re-consolidated its management rights.

02

WT Microelectronics Continues Its Expansion

In fact, on July 15, WT Microelectronics and NEC Electronics announced the suspension of trading at the same time, which triggered market speculation that the two companies

 might have a merger plan. Although the final result was a share exchange and both parties clearly stated that they would maintain independent operations, the market speculation

 was not groundless. After all, WT Microelectronics has always been active in mergers and acquisitions, and the entire chip distribution industry is also moving towards a trend of integration.

WT Microelectronics has continued to expand its business through mergers and acquisitions for many years. As early as before 2021, WT Microelectronics had completed seven large

 and small mergers and acquisitions, the largest of which was the acquisition of Zhiyuan and Xuanchang for US$400 million respectively. During this period, WT Microelectronics'

 revenue also grew steadily, from NT$144.15 billion in 2016 to NT$353.15 billion in 2020, doubling its revenue in five years, showing strong growth momentum.

After entering 2022, WT Microelectronics has accelerated its pace, first acquiring Shijian Technology for about RMB 1.08 billion, and then completing a major acquisition of Fuchang

 at a price of up to US$3.8 billion in 2024. The addition of Shijian directly boosted WT Microelectronics' revenue by 27.53% year-on-year to NT$571.2 billion in 2022; and the

 integration effect of Fuchang was even more significant, causing the revenue to jump to NT$959.431 billion in 2024, a year-on-year increase of 61.38%, not only setting a historical

 high, but also approaching the trillion-yuan mark in one fell swoop.

From a global perspective, WT Microelectronics, with the support of Future, will officially become the world's leading chip distributor in 2024. WT Microelectronics' latest data shows

 that its electronic components distribution market share ranks first in the world, reaching 12.2% (including Future), and ranks first in the Asia-Pacific region, reaching 14.5%. It

 covers 48 countries and regions worldwide, with 400+ suppliers and 25,000+ customers.

Product Portfolio: Expanding into Passive Components

Originally focused on IC (active component) distribution, WT Microelectronics had minimal presence in passive components until its acquisition of Future Electronics. This deal

 marked a significant breakthrough, with passive components now accounting for about 20% of Future’s revenue. However, within WT’s overall revenue—which surpassed

 NT$1 trillion this year—passive components still represent only a single-digit percentage (estimated at tens of billions of NT dollars). The partnership with Elite Advanced Material

 will further strengthen WT’s foothold in the passive components market.

Higher Margins in Passive Components

Elite Advanced Material boasts a gross margin of 16%-17%, significantly higher than the sub-5% typical of traditional IC distributors. WT Vice President Lin Guan-Nan noted that

 while the company has historically specialized in active components, the rise of AI applications is driving demand for passive components, which also offer better-than-average

 margins. Additionally, many customers require both active and passive components. Although the Future acquisition brought passive component distribution capabilities, its

 focus was primarily on Europe and North America, with limited presence in Asia. The collaboration with Elite is expected to enhance WT’s competitiveness in this segment.

Diversification Amid ADI’s Termination

Earlier this year, rumors surfaced that Analog Devices Inc. (ADI) had revoked WT’s distribution rights. While management downplayed the impact, the partnership with Elite may

 serve as a strategic move to diversify revenue streams and mitigate potential losses.

Strong Financial Performance in 2024

Despite Q1 traditionally being a slow season, WT benefited from an optimized product mix and stabilizing operations at Future, achieving NT$247.4 billion in revenue (up 28% YoY).

 Q2 revenue reached NT$259.5 billion (up 6.51% YoY), bringing H1 cumulative revenue to NT$506.927 billion (up 16.19% YoY).

Optimistic Outlook for Q3

WT expects robust performance in Q3, citing:

• The normalization of semiconductor inventory levels in Europe and North America.

• 
  

• Continued growth in AI applications and investments.

• 
  

• Stronger smartphone demand in H2 compared to H1.

• 
  However, challenges such as currency fluctuations and tariff uncertainties remain.

On Track to Join Taiwan’s "Trillion Club"

WT anticipates full-year revenue exceeding NT$1 trillion in 2024, positioning it as Taiwan’s sixth company to achieve this milestone—following Foxconn, TSMC, Quanta,

 Pegatron, and Wistron.

03

End Conclusion

WT Microelectronics's stock swap cooperation with NEC Electronics not only continues its usual M&A integration rhythm, but also further increases its layout in the passive

 component market. With the third quarter peak season approaching, can WT Microelectronics successfully enter the "trillion-dollar club" this year and continue to maintain its

 position as the global chip distribution leader? We might as well wait and see.