What the business could look like in '99
Matthew Sheerin, Editor
As the industry tries to put a down year behind it and begin 1999 with a clean, ever-optimistic slate, let's take a look at what might happen in a few market segments over the next 12 months.
Memory chips: The battle for control of the Hyundai-LG Semicon merger will go on for months, but Hyundai will end up running the new business. Yet the company won't cut enough of the fat to stay competitive, and profits will elude it and most other DRAM suppliers for much of 1999. The reason: Despite production cutbacks-and promises of cutbacks-OEMs should enjoy a plentiful supply of parts, Rambus or otherwise. On the pricing front, despite suppliers' predictions of increases, purchasers will continue to be in the catbird seat for most of the year, unless a major player bails out of the business or cuts back considerably.
Distribution: Expect more consolidation in the market as the top-tier players keep expanding through acquisitions and some mid-tier companies take the money and run. Arrow, Avnet, and VEBA will continue to grow through acquisition, there's no doubt, and the likely targets will be the $50 million to $500 million companies. The big question is who will be the next to go under, and what will happen to the middle tier of distribution. A slew of names, including Kent and CalSwitch, have been the subject of takeover rumors for weeks. But don't count out all the mid-tier resellers, despite what some analysts and executives believe. The better ones will survive and probably even expand. Also expect to see distributors join Arrow, Avnet, VEBA, and others with units dedicated to outsourcing and contract electronics manufacturing-clearly the fastest-growing segment for distribution. There are still plenty of opportunities here, but the window is closing fast.
IP&E: The passives and interconnect markets are primed for growth after another lousy year. AMP's new CEO, Robert Ripp, should accomplish much for new owner Tyco International. Framatome Connectors International's acquisition of Berg is already going smoothly, and that company will continue to be a major global player. Based on what's happened in the past few years, I wouldn't be surprised to see an outside company-probably an investment firm-buy up a passives manufacturer, a la KKR's purchase of Amphenol, and Hicks, Muse's investments in Berg and Viasystems.
E-commerce: After two years of experimenting, OEMs are likely to make much more use of online procurement, but there will be a shakeout among the many Web-based services. Look for deep-pocketed, well-connected outfits to survive.
Contract manufacturing: With several contractors now doing more than $1 billion in revenue a year, the upper tier of the business will all be in the $10 billion club before we know it. That's because major OEMs are selling off their factories faster than Dell-and its contractors-can build a PC to order. The top-tier CEMs won't be OEMs' only way to go, as $100 million contractors continue to fill important voids in the market.
Asian companies will represent the next wave of OEMs to embrace outsourcing in a big way, and U.S. CEMs will likely be the prime beneficiaries, just as they have been in Europe.
-Please drop me a note (msheerin@cmp.com) with any comments and suggestions. |
