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High-Tech Industry Poised for Further Consolidation
| 20 сентября 2011 |
A new study of the high-technology industry sheds new light on the likely rationale for big, recently announced deals, including Google's bid to acquire Motorola Mobility Holdings, AT&T's offer to acquire T-Mobile USA, and Hewlett-Packard's potential divestiture of its personal-computer business.
Despite steady growth opportunities in the high-tech industry overall, the study it finds that a sizeable gap between "winners and losers" in the industry, coupled with intense competition in maturing sectors, a diminished appetite for investing new equity capital and heavy debt loads, will likely lead to robust M&A activity through 2012. That's according to a comprehensive analysis of the global high-tech industry (1,195 companies) released today by AlixPartners LLP, the global business-advisory firm.In a time of violent market swings and economic uncertainty, the high-tech industry, the study finds, weathered the recession with only a modest decline (-3%) in revenue in 2009, followed by a jump of 8% in 2010. Through the first quarter this year, revenue rose at a 10% annual clip.
The semiconductor sector, which suffered the worst revenue loss (-15%) in 2009, topped the overall industry's rebound, posting 29% revenue growth in 2010. Software and telecommunications, meanwhile, led industry profitability in 2010, posting EBITDA margins of 33% and 31%, respectively. Moreover, telecommunications, fueled by growth in mobile, accounted for a staggering $2.1 trillion (43%) of the high-tech industry's $4.8 trillion in annual revenue, while contributing nearly two-thirds of the industry's $1 trillion in annual pre-tax cash profits (measured as EBITDA).
"On balance, the high-tech industry emerged from the recession relatively unscathed and is now performing quite well," said Karl Roberts, managing director at AlixPartners and head of the firm's High-Tech Practice. "However, this industry demands aggressive investment and innovation - and, given intense competition from all corners of the globe, narrow margins for error in execution and high debt loads in many sectors, the gap between winners and losers is growing. As a result, we expect continued, industry-rattling moves and changes, particularly from the strongest players."
According to the study, top-quartile companies in the industry generated 4.5 times higher EBITDA margins than lower-quartile companies. The top-performing companies also invested four times more in capital expenditures as a percentage of revenue, indicating that the gaps between winners and losers could continue to widen.
In addition, the study revealed, there are lingering concerns about financial viability for a number of high-tech companies. According to the analysis, some four in 10 44% of companies still face the risk of financial distress (the likelihood of default or bankruptcy within two years, if aggressive corrective actions are not undertaken), down only slightly from 49% in 2009. Moreover, that number represents a combined 56% of industry revenues that are at risk of financial distress.
Of particular note, more than 87% of consumer-electronics companies are at risk, up from 46.5% in 2009 primarily due to thin profit margins as a result of weak demand from the lackluster economy and fierce competition globally. Even in telecom, despite enormous strength overall, roughly three-quarters of players face distress risk, mostly due to the high debt loads they've taken on to expand their technological infrastructures and to fund acquisitions.
"More than just about any other industry, much of high-tech faces a vicious cycle of the constant need to invest capital to drive product innovation and differentiation, and to keep up with the pace of new technology," said Roberts. "It takes a lot of capital to 'turn the technology crank' - especially in telecom, consumer electronics and computer hardware - and, as a result, even many strong performers are strapped with high debt loads. This reality, combined with the continued sluggish economic outlook globally, will likely motivate aggressive consolidation."
When looking at industry margins and the outlook for growth, AlixPartners sees clear geographic issues emerging that will likely have an impact on the strategies and performance of companies moving forward.
"EBITDA margins for companies based in Asia are averaging just over half what they are for companies based elsewhere," said Roberts. "It appears that Asian companies are willing to accept lower margins in the hopes of achieving market-share growth, which could put North American and European companies, among others, at a distinct disadvantage. In fact, since half the companies we analyzed most high-techs are based in Asia, this could mean lower margins for the industry as a whole in the future."
The AlixPartners study also finds that weaker balance sheets and the potential for lower margins could make the industry quite favorable for private-equity buyers. "Private-equity firms specializing in smaller or distressed companies may find quite a few attractive turnaround situations and consolidation plays ahead," said Roberts. "In addition, while many other industries are facing no-growth scenarios, high-tech could well represent a relatively low-risk investment opportunity for at least a portion of the huge amount of sidelined capital controlled by PE firms."
Источник: Cellular news
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