Friday, June 3, 2011

Munich Part 2--Consolidation?

A question that comes up at every big industry event is, when is the laser industry going to consolidate? It came up in my conversations at Laser Munich last week, and it came up in the CEO Roundtable (for a full video, click here). This time, I posed the question to the CEOs: is there really an argument for consolidation, or is it just code for "let's get these lifestyle companies out of our way so my big company can keep growing."

Their answers were interesting, and were supported in many other discussions I had last week.

Stuart Schoenmann of CVI Melles Griot made the argument that consolidation across products produces economies of scale that can enable things you cannot do with smaller companies. Larger scale frees up management to make more optimal and strategic choices, whether it is where it is putting its R & D money or whether to outsource or not.

Ulrich Simon of Carl Zeiss Microimaging argued for consolidation in the vertical direction to own core technologies,: providing advantages that cannot be gained in a more stratified supply chain. Trumpf has often made that argument.IPG has gone that route, too.

David Marks of Qioptiq acknowleged that the industry needs to continue to support small companies, in part for the innovation that they bring. As much as start-ups must seem like spoilers,VCs have funded a lot of innovation that never paid them a penny in return, and the people and IP often wind up in the big companies. There is a lot less of that nowadays, but it still happens.

John Ambroseo of Coherent closed with a rousing argument that the real competition is not other laser companies, but all the other technologies out there--mechanical drills and shears, other medical treatments, other types of sensors. Without consolidation, the laser industry spends inefficiently on redundant R&D, distracting the industry from bigger opportunities.

I've always maintained that consolidation means different things to different people. To me, consolidation is only meaningful in specific market segments. It's when a few competitors have most of the market share. (Consolidation is the process. Concentration is the result.) This can happen when companies consolidate internally, by exiting product lines, but it's often hard to know this from outside. The laser industry is highly fragmented into hundreds of niches. It turns a big laser company into what I call a "confederation of business units. They do gain advantages in scale, to be sure, but it is also more complex to manage. It's hard to manage such big, sprawling companies. It's also hard to grow when you are already a big dog.

Not mentioned was that some segments seem to favor consolidation more than others. This leads into another topic that came up at Laser Munich: is it too late for a company trying to make it big in fiber lasers? I'll address that in a later post.

For other thoughts on consolidation, see:
Fragmentation depends on your point of view
Consolidation, Part 2--Is Oclaro consolidation or redistribution?
Consolidation in the laser market, Part 1--How much is there?

Tom Hausken
Strategies Unlimited