Semiconductor industry equipment supplier Applied Materials Inc., one of the largest makers of software and machines used by chipmakers such as Intel Corp., today said it has reached a deal to acquire Kokusai Electric Corp. for about $2.2 billion.

Kokusai will operate as a separate business unit within Applied Material’s semiconductor products group once the deal is completed within the next 12 months, Nikkei Asian Review reported. Applied Materials will finance the transaction with a combination of cash and a term loan facility, the report added.

The deal is significant despite its relatively small size for the industry because Applied Materials is the main supplier of equipment that’s used by chipmakers to transform silicon into computer processors. The veteran Silicon Valley company counts some of the biggest semiconductor makers as its customers, including Intel, Samsung Electronics Co. Ltd. and Taiwan Semiconductor Manufacturing Co.

Kokusai is focused on the more specialized task of processing of multiple wafers in parallel, especially those used for manufacturing memory chips. It also counts Intel, Samsung and TSM as its customers, and is currently owned by the investment firm KKR, having been sold by former parent Hitachi Ltd. in 2017.

Applied Materials Chief Executive Officer Gary Dickerson said the acquisition would expand his firm’s Asia footprint, noting that Kokusai has an installed base there of around 10,000 systems.

The acquisition comes at a time when Applied Materials is reportedly seeing lower demand for its equipment because of a glut of memory chips on the market that resulted from a decline in global smartphone sales recently.

“Applied Materials needs to acquire a $1B+ revenue business to make a difference to its revenue and earnings, so this makes sense,” Cowen and Co. analysts wrote in a client note, Bloomberg reported. Kokusai apparently fits the bill, since it reported $1.24 billion in revenue as of March 2018, though it seems that it’s not a big win for KKR.

“This strikes me as a KKR fire sale versus anything else,” said Patrick Moorhead, president and principal analyst with Moor Insights & Strategy.

Dickerson said the deal does not need the approval of U.S. regulators, who had previously forced it to abandon a $10 billion bid to buy Japanese firm Tokyo Electron Ltd. in 2015.

However, Chinese authorities will still need to give their approval for the deal, and that could be problematic given the ongoing trade negotiations between it and the U.S. government. China reportedly derailed another acquisition, Qualcomm Inc.’s $44 billion bid to buy Dutch firm NXP Semiconductor NV, after refusing to sign off on the deal last year.

If the deal goes through, it should help push Applied Materials’ share of the semiconductor equipment market to 20%, from 18% now, Nikkei said.

“The semiconductor industry is shrinking faster than a leaky air balloon and that affects the manufacturing side too,” said Holger Mueller, principal analyst and vice president of Constellation Research Inc. “With Applied Materials snapping up Kokusai, it only gradually but still substantially increases it’s market share. It also gives it more exposure into Japan and Asia, setting it up in better shape for the expected upswing of the industry.”

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