Munch or be munched on

THE wave of mergers in the technology industry, widely expected, may have finally begun. Yet it did not start as predicted in software, but in hardware. Last week Avago Technologies, a chipmaker which has already gobbled up a number of rivals in recent years, said it would buy Broadcom for a whopping $37 billion—the biggest tech deal since the dotcom bubble in the late 1990s. This week is likely to see Intel, the world’s biggest chipmaker, announcing that it intends to acquire Altera for as much as $15 billion.

Some of the reasons for these takeovers are financial in nature. Chip firms are under pressure to cut costs; scaling up is one way to do this. Avago hopes to save $750m a year as a result of its acquisition of Broadcom. Teaming up will give firms a better bargaining position with their customers, particularly with Apple and Samsung, which rule the roost in the smartphone market. Finance for the deals is easy to come by; Avago will issue $9 billion in new debt. And stock markets are at record heights, providing acquirers to issue new shares to fund the deals and allowing targets to get a good price.

But there are also other technological reasons why chipmakers want to combine forces. One is the rise of a technology called “system on a chip”, when different types of semiconductors are combined on a single chip. The deal between Avago and Broadcom will bring together two firms specialising in wireless and communication circuits to make these chips. Intel's interest in Avago serves a different purpose. Demand for specialised semiconductors is rising from providers of cloud-computing services to lower the energy consumption of their data centres; buying Altera, which makes programmable chips, will help Intel to supply these components. Moreover, the semiconductor industry is getting ready for what it hopes will be big source of demand—the “internet of things”, geek speak for a world in which everything becomes connected.

So expect more mergers in the chip industry. But will other tech sectors follow suit and make headlines with important deals? On May 12th Verizon, a American telecoms carrier, announced that it had agreed to buy AOL, a broadband firm, for $4.4 billion. And there is more to come: although exuberance about the internet sector’s growth prospects has lifted the shares of many firms, doubts are growing about the ability of some to continue their impressive winning streaks. Recently Twitter and LinkedIn, two social networks, missed earnings forecasts, sending their shares falling. Sustained underperformance could drive down public firms’ prices and make some of them easier targets. Yelp, a firm that hosts online reviews and makes money from local ads, has already put itself up for sale.

Yet the next big deal is likely to be the acquisition of HERE, the digital-map division of Nokia, a Finnish telecoms-equipment maker. Potential buyers are currently weighing up how much they should offer. HERE’s maps are considered among the most detailed in the industry—and high-quality maps will be a crucial asset in a world of self-driving cars. Half a dozen companies, groups and investment funds are known to be interested, including a consortium of German premium carmakers and one led by Uber, which is said to be willing to pay $3 billion for the firm.

And then there is the ongoing talk about a takeover of Salesforce, a cloud-computing pioneer worth nearly $50 billion. Despite repeated denials, the likeliest suitor remains Oracle, the world’s second-biggest software-seller. Salesforce is cut from Oracle cloth: not only is Salesforce’s larger-than-life boss, Marc Benioff, a former Oracle executive, but his firm is also built on Oracle technology. What’s more, as well as having the financial heft for such a move, Oracle needs to strengthen its cloud business and has a succession problem. Salesforce could be the answer to both. And if there is a deal, it could trigger many more.