Mergers will support tech industries, Barclays says

By Kevin Chen  /  Staff reporter

Tue, Oct 01, 2013 - Page 13

Taiwanese information technology hardware makers may need to pursue market consolidation in order to survive and stay competitive, Barclays Bank said in a report yesterday.

In a report, titled Survive and Thrive — The Need for M&A [mergers and acquisitions], Barclays said dwindling revenue opportunities and a lack of meaningful business transformation have put Taiwanese firms at a disadvantage against their regional rivals.

The British bank group said it is possible for Taiwanese firms to see successful transformations similar to Lenovo Group’s (聯想) — from a traditional PC company to a “PC plus-type” company, but added that execution in any merger and acquisition always brings risks.

“With several global M&A and privatizations taking place recently, we believe a similar type of consolidation is also needed for Taiwanese tech hardware companies, mostly due to TAM [total addressable market] declines,” said Kirk Yang (楊應超), head of Asia ex-Japan tech hardware research at Barclays based in Hong Kong, in the report.

“TAM is the number one problem for [Taiwanese tech hardware companies] and ASP [average selling price] decline is also a problem,” the report said.

The report came as Finnish handset vendor Nokia Ojy announced earlier last month that it was selling its devices and services businesses to Microsoft Corp, while Canadian smartphone maker BlackBerry Ltd said last week that it had reached a preliminary deal with its biggest shareholder to take the company private.

Meanwhile, Taiwanese handset chip designer MediaTek Inc's (聯發科) acquisition of local rival MStar Semiconductor Inc (晨星半導體) has also led to a unit of China's state-owned Tsinghua Holdings Co (清華控股) to acquire Chinese chip designer Spreadtrum Communications Inc (展訊通信) in July and Shanghai Pudong Science and Technology Investment Co's (上海浦東科技) announcement last week to acquire RDA Microelectronics Inc (銳迪科) through a tender offer.

Economists and industry experts have said one of the main challenges facing Taiwan is to consolidate ailing domestic firms in local industries, from LCD to DRAM and from PC to smartphone sectors, in a bid to help them better compete with Chinese and South Korean rivals.

“M&A creates companies that can quickly expand into the three key mobile products: notebook, smartphones and tablets,” Yang said. “However, this strategy may be difficult to execute, with resistance in Taiwan on issues such as company culture and who the new management team would be.”

On Wednesday last week, Taiwanese PC brand Acer Inc (宏碁) denied in a statement that it was pursuing any merger talks, stifling speculation that it might merge with Asustek Computer Inc (華碩) after Asustek chairman Jonney Shih (施崇棠) said he was open to such idea.

Smartphone vendor HTC Corp (宏達電) chairwoman Cher Wang (王雪紅) last month shrugged off speculation that the firm might merge with Chinese companies following a lackluster performance in recent quarters.

As most growth opportunities seem to be staying with smartphone and tablet markets, rather than the PC segment to which Taiwanese companies have a wider exposure, Barclays said M&A would be an option to this sector in view of fewer players and less competition.

Barclays said a “Taiwanese Lenovo” is possible because many of Taiwanese PC and smartphone companies have expertise in brands, channel, research, manufacturing and components.

Despite potential risks associated with the execution in M&A, the report also took note of the crucial point of regulatory review, but said the government should be supportive, as it would benefit the entire tech industry and employment in Taiwan.