News.com (from McKinsey Quarterly) writes about the coming M&A boom (of which we are already starting to see examples – eg. Juniper buying NetScreen):

Technology is a huge sector composed of many industries and markets. The pressures on companies are mounting fast, though the ghost of consolidation won’t haunt each of them equally. Indeed, some segments have already consolidated. Where once there were a fair number of operating systems for PCs, midrange computers and mainframes, for instance, now there are only a few. The database software industry has gone the same way. But other industries, by the very nature of the value propositions their niche companies provide, will probably remain fragmented. Vertical-specific applications are an example.

We found strong signs of impending restructuring in 11 of the industries we analyzed . These hot spots account for more than two-thirds of the sector’s revenue-a fact that speaks volumes about its ripeness for consolidation. In IT services, for example, professional and outsourcing services seem to be poised for an across-the-board restructuring. Software is vulnerable in particular areas, such as enterprise applications; storage; network and systems management and security; middleware; and software for application servers. In hardware the targets are PCs and notebook computers, networking gear and storage systems; in semiconductors they are logic, memory and semiconductor equipment.

While economic forces take effect, companies will jockey for increased scale, scope or some combination of both. As in any sector, scale-driven mergers, to streamline fixed costs over greater volumes and to satisfy the demand for bigger and more stable suppliers, will mostly take place between companies competing in the same industry.

Customers’ needs will also influence mergers undertaken for advantages of scope. Indeed, deals of this nature have already been done: in response to financial pressures and to the clamor of capital markets, companies that manufacture technology products have been acquiring service firms. We expect such mergers to proliferate as companies expand their breadth of product or service offerings to position themselves as preferred suppliers for big customers, to chase new profit streams, and to hunt for cross-selling and multichannel synergies.

The world of consumer electronics is set for an upheaval with the arrival of the computer companies. How will the likes of Sony respond to competition from the brigade led by Dell? NYTimes writes:

A few years ago, Sony would have sniffed at a low-cost computer maker like Dell producing flat-panel television monitors or a cellphone manufacturer like Nokia making hand-held video games. Not anymore. Sony executives know that these newcomers to the home-entertainment business can produce what they say they will, and do it for less than any company in Japan. Apple Computer’s success with iPod, the digital music recorder, is also a reminder that Sony no longer has a monopoly on tech cool.

Sony, of course, has been under attack before, and often has rebounded in ways that few analysts had expected. Rarely, though, have so many competitors joined the home-entertainment market at once. Thanks to the commodification of the electronics industry, companies can buy components easily from suppliers in Taiwan, South Korea, China and even Japan. Having honed their cost-cutting skills, these companies can often produce products faster and more profitably than Sony can.

Having been upstaged by Apple, Samsung and others in certain product categories, Sony is taking action. Mr. Ando is one-half of a two-man team heading the company’s ambitious, multipronged strategy, called Transformation 60. It is an effort to bolster profits, revamp the company’s product lineup and repair what many critics see as a damaged reputation. To be completed by Sony’s 60th anniversary, in 2006, the plan includes eliminating 20,000 jobs, cutting billions of dollars in expenses and quadrupling operating margins, to 10 percent.

The other major pillar of the plan is to design a new generation of products that will allow Sony to fend off challenges from Hewlett-Packard, Intel and others that are trying to put personal computers, not the television, at the center of home entertainment. Ken Kutaragi, whose is best known for creating the PlayStation video game console, is spearheading the development of these products.

To vault past the competition, Sony is joining hands with outsiders in some product areas. The company will spend $2 billion to produce next-generation liquid crystal displays with the Samsung Corporation of South Korea. Sony is also working with the Toshiba Corporation and I.B.M. to develop CELL, a high-powered chip that will become the centerpiece of an array of new digital gadgets. Last week, Sony said it would spend 120 billion yen ($1.14 billion) this year alone on building these chips. In other areas, most notably video games, Sony will try to blend its electronics and content businesses to produce the long-sought-after “digital convergence,” the integration of software and hardware.