Bart Slob Brussels, September 11, 2006 Mergers and acquisitions in the electronics sector

How many people work at Foxconn’s manufacturing facility in Shenzhen? 70.000, of which about 30 percent are women 50.000, of which about 80 percent are women 200.000, of which about 70 percent are women

70.000, of which about 30 percent are women

50.000, of which about 80 percent are women

200.000, of which about 70 percent are women

Supply chains in the electronics sector Original Equipment Manufacturers (OEMs) HP, Dell, IBM, Toshiba, Acer, Fujitsu-Siemens, Nec, Lenovo, Sony, Apple Electronics Manufacturing Services (EMS) Flextronics Hon Hai, Sanmina-SCI, Solectron, Celestica, Jabil, Elcoteq, Benchmark, Venture USI Original Design Manufacturers (ODMs) Quanta, Asustek, Compal, BenQ, Lite-on, Inventec, Wistron, Tatung, Micro-Star, Mitac Intl. In-house production Component manufacturers outsourcing to Contract Manufacturers > 50% < 50%

Modus operandi of the ICT hardware sector Barebone strategy : OEMs buy barebone computers - without processor, RAM storage and hard disk drive. Production of barebone computers takes place in Asia. A small number of very large (multinational) contract manufacturers supply most of the computers sold by market leaders Dell, IBM, HP and Acer. Quanta en Compal produce about 54 % of all notebooks on the world market.

Barebone strategy : OEMs buy barebone computers - without processor, RAM storage and hard disk drive.

Production of barebone computers takes place in Asia.

A small number of very large (multinational) contract manufacturers supply most of the computers sold by market leaders Dell, IBM, HP and Acer.

Quanta en Compal produce about 54 % of all notebooks on the world market.

Competing brands sell nearly identical products

Recent developments the electronics supply chain Overlap between services and products offered by OEMs, ODMs and EMS and third-party logistics operators. EMS companies (Foxconn, for instance) develop ODM capacities. EMS become ODMs, ODMs become brand-name companies. What will become of the traditional OEMs?

Overlap between services and products offered by OEMs, ODMs and EMS and third-party logistics operators.

EMS companies (Foxconn, for instance) develop ODM capacities.

EMS become ODMs, ODMs become brand-name companies.

What will become of the traditional OEMs?

Overlapping activities in the electronics supply chain

Consolidation in the sector – recent developments Market leaders hit the wall in terms of growth Traditional electronics companies sell their non-core businesses to lower-cost Asian manufacturers Growing importance of private equity firms State-owned Chinese companies engage in takeovers

Market leaders hit the wall in terms of growth

Traditional electronics companies sell their non-core businesses to lower-cost Asian manufacturers

Growing importance of private equity firms

State-owned Chinese companies engage in takeovers

Future trends Increase of M&A in the electronics sector due to economic decline after 2010 (Kondratieff) Fierce competition among companies in different stages of the value chain Joint ventures, mergers and acquisitions involving Asian ODMs, EMS and OEMs and European brand-name companies Private equity firms will continue to buy and resell companies in the sector

Increase of M&A in the electronics sector due to economic decline after 2010 (Kondratieff)

Fierce competition among companies in different stages of the value chain

Joint ventures, mergers and acquisitions involving Asian ODMs, EMS and OEMs and European brand-name companies

Private equity firms will continue to buy and resell companies in the sector

Possible consequences for restructuring in Europe Asian companies (ODMs and new OEMs) will maintain manufacturing operations in new member states (notably Czech Republic). Need for long-term productivity “improvements” may lead to the creation of new jobs linked to R&D and innovation. As technologies converge, supply chains can change radically. This will have an impact on employment in the sector. European companies may merge to avoid takeovers by Chinese and Indian companies.

Asian companies (ODMs and new OEMs) will maintain manufacturing operations in new member states (notably Czech Republic).

Need for long-term productivity “improvements” may lead to the creation of new jobs linked to R&D and innovation.

As technologies converge, supply chains can change radically. This will have an impact on employment in the sector.

European companies may merge to avoid takeovers by Chinese and Indian companies.

For more information: SOMO Keizersgracht 132 1015 CW Amsterdam The Netherlands www.somo.nl Bart Slob: [email_address]