Where Is The New Competition?

Consolidation is raising the threat level from some well-financed but unfamiliar players.

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Consolidation is a regular topic of discussion at semiconductor industry conferences and trade shows. Anyone who has been to these gatherings over the past couple decades can see there are fewer companies presenting and exhibiting, fewer startups taking the place of those that were bought, and a dramatic increase in one-day, one-vendor-sponsored events where top experts are gathered to talk about very specific subjects.

At the same time, the issues that need to be addressed are more complex and interrelated, and the number of attendees (as well as the overall number of conferences) is collectively on the rise. There are frequently two or three conferences a week in Silicon Valley alone, and a growing number in Europe, Japan, China and India, as the industry begins to grapple with what an uber-connected world really looks like, where the opportunities are, and how to deal with risks such as security, rising complexity, and a slew of new and sometimes competing standards.

What’s not so obvious, though, is that similar trends are underway in other industries. The semiconductor industry has gotten a peek into this with the rush by automobile makers to add advanced electronics into vehicles in preparation for assisted and autonomous driving. But following Samsung’s acquisition of Harman, there is speculation that many of the Tier 1 and Tier 2 automotive suppliers could disappear into larger companies with broad-based electronics expertise. Just imagine, for example, what would happen if one or two large companies with vast cash reserves began buying up key suppliers.

Given the kinds of deals that are unfolding in adjacent markets, this isn’t so far-fetched. The automotive market is particularly active right now, in part because established automakers are facing a very real threat from Tesla, which didn’t even exist until 2003. Yet Tesla already has an autonomous vehicle solution in production and a state-of-the-art infrastructure to continue updating it. For other automakers, which typically are on five- to seven-year development cycles, this has set off a mad scramble to modernize and add comparable technology into their vehicles. And all of this is happening against a backdrop of trade restrictions that could make it far harder to compete on a global scale and the threat of rising interest rates.

In its 2016 M&A Global Outlook report, J.P. Morgan noted that CEOs have $6 trillion to pursue growth and defensive combinations, and that “cross-border transactions will provide a significant source of value creation.” What’s clear in the technology industry, though, is that cross-border isn’t necessarily about political borders. It’s also about vertical market boundaries.

In the past couple of weeks, Verizon bought LQD WiFi, a smart infrastructure company started in 2014 in New York. And GE bought Canada’s Bit Stew and Berkeley, Calif.-based Wise.i.o, both specializing in artificial intelligence. All of these deals are well outside the traditional businesses of Verizon and GE, but the IoT has opened the doors to cross-industry deals as the competitive landscape is redefined.

All of these deals raise some interesting issues for the remainder of the decade for the electronics industry as a whole, and the semiconductor industry in particular. First, understanding competition and a particular market will need constant reassessment in light of market convergence that will open the doors to competitors from other sectors. Second, political rhetoric will likely turn into policy, which means top executives will need a much broader context to guide their businesses to predictable results than they required even a year ago. And third, flexibility will need to be built into business plans because market changes could be more abrupt, farther-reaching, and potentially more devastating.