OEM Consolidation – Is This the Year?

As we pass the midpoint of the year, it’s always interesting to peruse the prior “years in review” for predictions about what might be in store.  During my days working for an office technology OEM, I really enjoyed the prognostications from the likes of Gartner Group, IDC and others.  Heck, they even gave probabilities in connection with their predictions.  “Page volume in the general office will decline in the coming year” – probability 100%.  “The overall market for A4 devices will grow” – probability 95%.

Of course, I’m poking a little fun given the predictions mentioned above.  Truth be told, many of the predictions outlined by analysts at the beginning of each year can be quite insightful, even if they don’t come to fruition.  Take the predictions made many years ago concerning business diversification, dealer acquisitions and private equity.  Many of these have proven to be quite accurate, foretelling today’s office technology landscape.  Those who acted upon these and other prognostications have certainly benefited.

One prediction that has been much more challenging to make is that of OEM consolidation.  When I entered the office technology industry in the mid-90s, OEM consolidation was already a topic of discussion.  At the time, analog technology was mature but was still the primary means of duplicating documents, and it wasn’t clear whether digital technology in the form of MFPs would ultimately win the day.  Under these circumstances, it was no wonder that people speculated that the industry OEMs would ultimately contract.  Technically, there was contraction as the likes of Savin, Lanier, Gestetner, Kodak, and others disappeared from the general office landscape.  Of course, many of these losses were brand consolidations, but they were contractions nonetheless.

Since the loss of the brands previously mentioned, the most notable consolidation the industry has seen was arguably the merger of Konica and Minolta.  No, for you Canon fans, I didn’t forget Canon and Océ, but although large in size, KM was a bit more impactful in the general office.  That said, despite the continued expectation around OEM consolidation, the industry still largely consists of the same major players.

So, the question remains, “Is this the year we’ll see OEM consolidation?”  Considering we have already passed the halfway point in the year, the prospects don’t seem high – probability 20%.  However, this hasn’t stopped the continued chatter in the industry concerning potential merger and acquisition activity at the OEM level.

If we analyze today’s situation, it would seem that some type of consolidation would be in the offing.  For example, we know that the industry is highly mature and that the available business opportunity for existing OEMs is getting squeezed as the market continues to contract.  New business domains are challenging to enter for OEMs, and many of these domains don’t deliver a level of revenue and profit capable of replacing what is being lost in the core printing business.  Although transient in nature, supply chain issues are making the delivery of business results even more challenging, particularly affecting those players already struggling.  The effects of digital transformation and new working arrangements for employees haven’t yet fully impacted the industry, but when they do, it is likely to be substantial.

Despite this mountain of evidence pointing toward consolidation, the wheels of integration for office technology manufacturers move very slowly.  For all the reasons pointing toward consolidation, there are seemingly just as many that can be cited in support of the status quo.  For example, although the overall market for print continues to contract and many OEMs are struggling to maintain historic revenue levels, most are still generating profit.  For those OEMs that are parts of larger organizations, while they may be shrinking, if they remain profitable there is little incentive to merge or acquire.  Many of today’s OEMs are competing in the same markets.  As a result, combinations don’t deliver the type of value that a combination such as the aforementioned Canon and Océ provided, given the lack of overlapping solution offerings represented by this particular acquisition.  And we can’t overlook culture in this discussion.  Many of today’s OEMs are Japan-based and, with a few exceptions, have limited experience in the merger and acquisition arena.  This, coupled with long-term employment culture, makes the integration of Japan-based OEMs more challenging as any merger would necessarily result in fewer employees in the combined entities.

What we do know about our industry is quite clear. Although there will continue to be pockets of growth in the traditional print space, the overall market opportunity associated with print will likely continue its decline, and it is quite possible that digital transformation and new working arrangements will cause this decline to accelerate.  There doesn’t appear to be the ”next MFP” on the horizon that will foster in a new era of growth.  And while today’s inflationary pressures are driving up prices, the long-term trajectory for pricing is downward due to a combination of market competition and customer preference for A4 devices.

As the market continues its move to maturity, today’s strongest players will likely get stronger and like many mature markets, weaker players will find it challenging to survive.  Under these circumstances, OEM consolidation appears inevitable.  So, will this be the year? Probability — who knows?