A new round of industry consolidation lies ahead for the high-tech sector.
Continuing a trend that picked up earlier this year with several mega-deals, the high-tech market will likely see increased mergers and acquisition activities in 2011 as companies leverage swollen balance sheets to snap up smaller rivals in similar market segments or expand into adjacent industry sectors to beef up product lines.
Many of the M&A actions that we will likely see in 2011 will involve trans-continental transactions as the industry’s top players expand or strengthen their operational presence across the globe. Some deals will occur between European and North American players but the more dramatic and strategic activities are likely to take place in Asia and involve western companies merging with or acquiring smaller but fast-growing competitors globally.
Until now, most Western companies involve in the high-tech supply chain have been content to simply outsource production to Asia or relocate facilities to the region. That’s about to change. In addition to fostering the same start-up culture that created Silicon Valley, countries like China, India, Korea, the Philippines and the Asian Tigers are also emerging as major consumers of electronic equipment.
China is already the biggest market for wireless phones worldwide and demand for LCD-TV’s in the country is forecast by researcher iSuppli Corp. to jump 34 percent in 2010 compared with 1 percent and 8.9 percent in North America and Western Europe, respectively.
As Asia evolves in the high-tech market from serving as a manufacturing and component supply center into a major consumer market the biggest North American and west European companies will similarly evolve in their response by seeking to establish a stronger and more permanent presence in the region. Invariably, this will result in transactions aimed at melding local firms into their bigger and better know Western rivals through mergers and acquisitions.
This is already happening in certain market segments but it will accelerate in coming years led by the same group of companies that in Europe and North America transformed the local landscape through acquisitions. Companies like HP, Cisco, Oracle and even IBM will lead the trend. They may be more active initially in India but eventually as they become more confident about the prospects for growth in Asia, attention will turn to the fractured Chinese market.
The Chinese government may not be totally supportive of the flood of Western companies by local rivals but it will not be able to stem the tide. By opening up the country to foreign capital and investments decades earlier, China itself set up a possibly irreversible integration of its economy with the West. The first phase is over. The next phase is about to begin.
In a future article, I will examine the implications of this development for the electronic supply chain and review the financial resources Western companies can harness as they continue the local and international consolidation of various high-tech sectors in 2011.