onsemi, one of the world's largest makers of power semiconductors, has agreed to buy Ferric, a startup specialising in technology that delivers power efficiently to AI chips, as the race to supply electricity to energy-hungry data centres becomes one of the most important battlegrounds in the semiconductor industry.
The Arizona-based chipmaker will pay $600 million in cash at closing, plus up to $175 million in contingent payments tied to revenue milestones, for a potential total of $775 million, according to BigGo Finance, citing the company's announcement on Monday, November 2. The deal is expected to close by the end of 2026 and will be funded with cash on hand.
Ferric develops integrated voltage regulator (IVR) technology and has more than 40 patents and about 50 employees, mainly in New York and Silicon Valley.
"The rapid growth of AI is reshaping the requirements for power delivery," said Hassane El-Khoury, onsemi's president and chief executive. He said the "strategic acquisition will strengthen our leadership position."
Why power delivery matters
AI chips such as graphics processing units consume enormous amounts of electricity, and the amount of power each chip requires has risen sharply with each new generation. Delivering that power efficiently, from the electricity grid through the data centre to the chip itself, has become a major engineering challenge.
Voltage regulators convert electricity to the precise voltages that chips need. Integrated voltage regulators place this conversion very close to, or even inside, the chip package, reducing energy losses and allowing faster, more precise control of power. As AI chips draw more power, the efficiency gains from such technologies become increasingly valuable, both to reduce electricity costs and to manage heat.
AI revenue surges
The acquisition was announced alongside onsemi's third-quarter results, which showed strong growth in its AI data centre business. AI data centre revenue rose 39% from the previous quarter and 175% from a year earlier, according to El-Khoury.
"Increasing power requirements are driving accelerated demand in our AI data center and industrial end markets," he said.
onsemi raised its 2030 target for AI data centre revenue by $500 million to more than $3 billion, according to BigGo Finance.
Total revenue for the third quarter was $1.72 billion, ahead of the consensus estimate of $1.7 billion, and earnings per share were $0.90, compared with an expected $0.87. The company forecast fourth-quarter earnings per share of $0.95 to $1.07, above the consensus of $0.88.
Shares slip
Despite the strong results and upbeat guidance, onsemi's shares fell about 4% in after-hours trading, according to BigGo Finance. Investors weighed the cost of the Ferric deal alongside changes to onsemi's planned acquisition of Synaptics.
onsemi restructured its planned acquisition of Synaptics, a maker of chips for human interface and connectivity, to about $5.7 billion in cash, replacing a previous structure valued at about $7 billion in stock, according to BigGo Finance. The combination of two acquisitions represents a significant strategic expansion for onsemi.
onsemi's transformation
onsemi, formerly known as ON Semiconductor, has transformed itself in recent years under El-Khoury, who became chief executive in 2020. The company shifted its focus towards higher-margin power and sensing chips for the automotive and industrial markets, becoming a leading supplier of silicon carbide chips used in electric vehicles.
However, the electric vehicle market has slowed in some regions, weighing on demand for automotive chips. The rapid growth of AI data centres has given onsemi a new growth engine, as its power semiconductors are used in the power supplies and power distribution systems of data centres. In its results, onsemi said AI data centre strength offset softness in its automotive business.
The data centre power race
onsemi is one of many chipmakers seeking to capitalise on the growth in data centre power demand. Competitors include Infineon, Texas Instruments, Analog Devices, Monolithic Power Systems, Renesas and Vicor. Nvidia, the leading supplier of AI chips, has pushed the industry towards new power architectures, including 800-volt direct current power distribution in data centres, to improve efficiency.
The shift is creating opportunities for companies with expertise in power semiconductors, including silicon carbide and gallium nitride technologies, which handle high voltages more efficiently than traditional silicon. Chinese companies are also investing heavily in this area; on the same day, Chinese silicon carbide maker Xinlian Power announced a Series C round of nearly 2 billion yuan to expand into AI data centre power.
Energy and sustainability
The efficiency of power delivery has significant environmental implications. AI data centres are consuming a rapidly growing share of electricity in the United States and other countries, raising concerns about grid capacity, electricity prices and carbon emissions. More efficient power delivery can reduce the electricity needed for each AI computation, helping to moderate the growth of energy consumption.
The India angle
India is seeking to build a semiconductor industry, with government support for chip fabrication plants, assembly and testing facilities, and design. Power semiconductors are one area of focus, given their importance for electric vehicles, renewable energy and data centres. India is also seeing rapid growth in data centre construction, driven by cloud computing and AI, which will create demand for power electronics. Global power chip companies have expanded their engineering and design operations in India, drawing on its large pool of semiconductor design talent.
Integration ahead
Ferric's roughly 50 employees and its portfolio of more than 40 patents will be integrated into onsemi's power solutions business. Integrated voltage regulators require close collaboration with chip designers and packaging specialists, and onsemi will aim to combine Ferric's technology with its own power semiconductors to offer more complete power delivery solutions for data centre customers.
The milestone-based structure of the deal, with up to $175 million tied to revenue targets, gives onsemi some protection if Ferric's technology takes longer than expected to gain commercial traction, while rewarding Ferric's shareholders if it succeeds.
For the wider semiconductor industry, the deal is a reminder that the AI boom is creating opportunities not only for the makers of AI processors but also for the many companies that supply the components needed to power, cool and connect them.
What comes next
onsemi will work to close the Ferric and Synaptics acquisitions and integrate them into its business. Investors will watch whether the company can deliver on its raised AI data centre revenue target and whether its automotive business recovers. With AI data centres' power needs continuing to rise, the market for power delivery technology is likely to remain one of the fastest-growing segments of the semiconductor industry.
