Electronics manufacturers are resigned to the stark reality that 2016 and the next several years will be marked more by restructuring, operational adjustments and management upheavals than strong growth. Across the industry, electronics firms are retooling everything for a vaguely defined “digital future” that everyone says requires a new growth strategy, a different set of products and, in a growing number of cases, even a new CEO.
Change is the new mantra of the electronics industry and companies across all segments of the market are being rattled by deep and unsettling portfolio and executive upheavals. As if just awakening to the urgency of the challenges facing their business charges, boards of directors have been sacking CEOs at a faster clip than in the past, anchoring their moves on the necessity for a new leadership to take the enterprise towards the emerging digital world. Having resigned themselves to the likelihood of multi-year slow growth, boards of directors appear to be doing the next best thing: enterprise transformation.
"Company transformation continues to be a reoccurring theme across our industry as suppliers overhaul leadership, retool technology, search for new customers, and double down on their core business for stability," said Mario Morales, program vice president, Enabling Technologies, at IDC, in a statement. "It will be a couple of years before we realize which game plan succeeds, but even the leaders are struggling to keep pace with the cadence of the market."
No electronics sector has been spared. CEOs have either resigned or been swept aside and swiftly replaced at component distributors, OEMs and semiconductor vendors. The changes at the top of these companies, including Avnet, Cisco, Electrocomponents, Electrolux, Ericsson, Marvel and Renesas, have typically been followed by further executive firings and replacements. (See: Global Exec Ed Smith Leaves Avnet).
In addition to the rise in executive changes, Mergers and acquisition transactions have mushroomed. Many of them run into billions of dollars and elevated premiums – up to 40 percent above prior closing stock prices – have become the norm. These transactions are more pronounced in the semiconductor segment where companies are bulking up by buying competitors or selling non-core units to raise funds for potential deals. The pace of mergers and acquisition in the chip market is at the highest it has ever reached in decades with more deals expected before the end of the year.
In the latest M&A development, reports this week indicated Renesas was in advanced discussions to buy Intersil Corp., in a deal that would propel the Japanese company back to the top of the automotive IC market. Renesas only this year lost that title to NXP Semiconductor when the Dutch company engineered a $12 billion purchase of American rival Freescale Semiconductor.
IDC analysts said they expect more turmoil in the market for automotive semiconductors due to the relative stability of the segment and the more opaque and unpredictable demand environment in other markets, including mobile phones, PCs, tablets and other consumer electronics devices. With the auto-IC market concentrated in a few hands, OEMs can expect further consolidation in the coming years as companies use available cash to squeeze out rivals and acquire differentiating technologies, according to Nina Turner, a research manager with IDC.
“Automotive semiconductor revenue is concentrated with the top 10 suppliers, accounting for 64% of the industry's revenue and is likely to grow more concentrated as announced mergers are closed,” Turner said in a statement announcing IDC’s 2016 semiconductor forecast. “As both government regulations and consumers demand more features, the key drivers of electrification, connectivity, and infotainment and advanced driver assistance (ADAS) features will continue to drive growth of semiconductor content on a per automobile basis and the automotive segment is expected to grow at four times the pace of the overall market with a CAGR of 8% through 2020.”
Automotive electronics is one of the few glittering segments in the semiconductor market today. Many of the other sectors are wobbly; sales growth has turned tepid and even negative for the entire semiconductor market. IDC in May predicted negative growth for the segment on continuing pressure in the consumer electronics market. The consulting firm said semiconductor sales for 2016 would be about $324 billion, a decline of 2.3 percent from 2015. It doesn’t expect a strong recovery in the next several years, either, and is forecasting less than 2 percent compound annual growth rate between 2015 and 2020.
It was clear already late in 2015 that the year ahead wasn’t going to be a breakout period. Forecasts were for tepid growth not only in for 2016 but over the next several years, according to Dale Ford, chief analyst with market research and consulting company IHS Inc. Ford in a late 2015 interview with EPSNews predicted the electronics industry would move sideways, growing on a flat level, from 2015 through 2021 to 2022.
With this rather dull outlook it is understandable that companies would spend the period of flat growth overhauling operations and management structures, according to observers. Although these actions began as far back as 2014, the emphasis on reviewing entire operating structures has intensified this year, hence the layoff of executives considered unable to provide the leadership needed for a radically different business environment.