Technology
Technology is a dynamic, broad-based industry that’s driving many of the changes we see in the world today. It’s distinguished by its rapid pace and potential for radical new departures. It’s one of the few sectors where international borders have limited impact; allowing a company to go from start-up to global giant in rapid-scale time.
Following a pause in 2000-2003, technology businesses are once again growing quickly. No doubt, electronics and semiconductors are at the heart of the modern economy. Microprocessors and chipsets form a substantial part of the semiconductor market and these segments of the industry have witnessed most of the cutting-edge developments and growth in the last few years.
Sectors include:
- Electronic Devices
- Internet & Digital Media
- Technology Services
- Software & Hardware
- Hosted-Services
- Communications and Networking
- eCommerce
- Semiconductor
- Information Services
- Data Storage
- Electronic Supply Chain
- Transaction Processing
- Internet Security
- Electronic Gaming
- IT Mobility
Each year, another 35 billion microprocessors are activated; driving most of the products used by industry today, as well as a range of everyday devices that includes smart cards, satellite positioning systems, mobile phones and MP3 players. The number and functionality of intelligent devices has seen rapid growth, and this trend will continue.
In the modern IT economy, online advertising revenues continue to surge and market momentum is driving solid growth in worldwide disk storage systems. Data protection and recovery as well as replication software demand is driving the storage software market and disruptive business models continue to gain traction across subsectors.
In the world of domestic appliances, manufacturers are developing closer relationships with end-users, using computer chips and wireless technology to offer packages of solutions and services that include remote operation, software updates and fault diagnosis. This helps firms not only to accelerate company growth, but allows opportunities to expand, organically and by acquisition.
As more and more devices become intelligent, many businesses are exiting commoditized manufacturing; and market leaders, are combining outsourced manufacturing with a focus on added-value customer solutions satisfying unmet customer needs by combining innovation, design and delivery.
Technology is enabling businesses to enhance their all-round product offerings. In semiconductors, where products genuinely are a commodity, production has shifted to lower-cost centers in Asia and established companies are spinning out non-core activities, creating room for the emergence of niche players who then have the opportunity to merge to build scale and efficiency.
In the IT services sector, outsourced services and offshoring has blossomed. Instead of simply operating clients’ IT infrastructure, service providers run key core-processes and supply services such as disaster recovery and defenses against hostile activity. As volumes increase, so do the opportunities for efficiencies, innovation, consolidation and scale.
Efficient In-house IT service suppliers are now spinning off divisions of stand-alone operations, benefiting from their service offerings in a wider, open market. Despite well-publicized issues, the business and financial logic of offshoring to Asia, India and other regions remains strong. Offshoring is here to stay. As a result, IT services companies that can deliver client satisfaction as well as cost benefits will reap high returns.
The software sector continues to expand as companies seek business advantage and increased efficiency through the use of new and improved software. The range of applications is broad - from security and financial services software - to software that helps colleagues collaborate and think more creatively.
Enterprise applications (ERP), dominated by global giants, continue to seek control of the small to medium-sized business sector and the continued requirement to financially justify all IT purchases with short payback timescales, has brought a new level of competitiveness to the market. The US market alone accounts for about half of global software sales and successful participation in the North American market helps deliver credible, financial returns and partnering opportunities.
Around the world, more than a billion people use the Internet regularly and global sales of software are approaching $200 billion a year. Internet businesses can often thrive regardless of geographic location and the continued rapid rise of open-source technologies, ubiquity of Microsoft technologies and the continued drive towards web services-based application infrastructures, have forced suppliers to re-evaluate their technology platforms and business models, creating opportunity for start-ups.
At Lexington, we look to engage with Internet businesses where technology is being used to enhance a consumer experience or value chain, such as digital marketing, collaborative computing and social media. Increasingly, we support businesses where the Internet is being deployed to new devices, such as the integration of mobile computing and video TV.
In general, we avoid generic office and enterprise applications, where large companies dominate markets and current revenue models are under attack. However, unique, IP-protected applications that enable major disruptions within large-scale markets are attractive. We believe certain elements of the IT services industry are ripe for consolidation and seek out companies looking to acquire or merge.
In a market where size is king, there is an inescapable logic for mergers and acquisitions that deliver economies of scale. We embrace focused business models; with depth in management teams that can play to certain trends, and which demonstrate the potential to become a leader in a defined niche.
These areas include IT mobility, on-demand computing, intelligent devices, profitable outsourced services, convergent technologies, and innovative security-related applications; technologies that expand IT requirements outside of established domains.
