This Month's Spectrum Summary:

(The following is an excerpt from the November 2003 issue of Spectrum. Spectrum is a proprietary monthly briefing published exclusively for the clients of I.T. Strategies, Inc. © 2003)

As Office and Consumer Electronics Merge, Diversification May Not Be the Answer

This month we explore the broader impact of productivity gains on our industry structure and strategic options with Marco Boer and Mark Hanley. Worldwide information age productivity gains have several layers of impact: a people layer (job losses), a product layer (printers ever more powerful and affordable), and an industry structure layer (declining margins forcing consolidations and/or prompting diversification).

Opportunities remain for printers. On the consumer side, an example is greeting cards, with lots of new possibilities opened by digital cameras, ever more functional and affordable color inkjet, and a barrage of media options. More affordable wide format printers will create new business opportunities. There will be more and more opportunities, but also fragmentation. On the office side, the non-profit sector is inviting. Including hospitals, schools and churches, this amounts to a $6B slice of the U.S. economy. The new Riso Orphis HC5000 color inkjet printer is seen as a breakthrough product that is a good non-profit fit since it targets the office duplicator. Another breakthrough product in terms of cost/performance is the Canon C3200 color copier. In the industrial area, we speculate that thermal transfer bar coding is vulnerable to low cost mono laser technology.

Turning to industry structure, we see the boundaries melting between office and consumer electronics. PC companies note higher margins in consumer electronics, so a company like Dell moves deeper into consumer products such as MP3 players and LCD TV monitors. HP and others are also diversifying in this direction (see box).

Generic components are making it easier to field new products, so low-cost producers from Taiwan and elsewhere are also moving up into products. These ODMs (Original Design Manufacturers) are driving down prices and making it possible for relatively unknown companies to become market leaders. In time we may see China's bourgeoning electronics industry replacing Japan as leader, just as Japan replaced the U.S. earlier.

This changing market complex calls for vendors to take lots of small risks, to finesse existing products aimed at market sub-segments. Diversifying into consumer products doesn't solve the problem of low margins. With standardized components, it's easier and easier to field new products, not just for you, but for everyone. And on the consumer side, it is suggested that there are more products than the market can absorb. So we have layoffs and consolidations in consumer electronics as well.

We conclude that it is time to rethink our core strengths, match them with appropriate market segments, practice the efficiency we sell, and build profitable growth by carefully programmed small risks, with faith that today's fragmentation is a form of chaos that opens the door to creativity.