In preparing our cover story this month, which begins on pg. 34, we asked several leading industry minds whether they see disruption coming from inside or outside the industry. How they responded was tied to where they think innovation will come from.

The electronics industry lives on innovation, and the antecedent to innovation is competition.

Consider AT&T and the monolithic pace at which new features were rolled out during much of its lengthy history. While in grade school in the early 1980s, I remember finally migrating to touch tone (push button) from rotary dialing on our family’s “company leased” wall-mounted phone. That was nearly 20 years after Bell commercialized the technology. While the Buetow family never was an early adopter for, well, anything (my dad, now 82, has used the same manual rotary lawn edger my entire life), it wasn’t like AT&T was rushing to widely update the marketplace; the concept for push button phones dates to at least 1887.

Its government-ordered breakup in 1982 removed local service from Ma Bell, leaving it with long distance, R&D and phone-equipment manufacturing. Progress came in short order. Caller ID, 15 years in the making, arrived in 1984 (making the prank phone call a thing of the past); fiber optics replaced copper for long-distance hauls; cellphones (pioneered by Bell Labs in the mid 1940s) began showing up in the hands of everyday consumers in 1983 when Motorola rolled out the DynaTac phone on a network built by Bell spinoff Ameritech. Now even my pre-teen kids have them.

Consolidation in the supply chain – i.e., reduction of competition – should be reason enough to make even the most capitalistic among us uneasy, which is why two major emerging stories in the bare board market could reverberate for years to come.

First, the pending Platform Specialty Products acquisitions of a pair of competitors’ PCB chemicals units. Second, the consolidation of the high-end laminate materials market.

Platform, as readers will know, is aggressively buying companies in the solder and electroplating/finishing materials space, first with its bid for OMG’s PCB chemicals unit (the former Electrochemicals) and, now having cleared most regulatory hurdles to acquiring Alent, the former Cookson Metals divisions, which include Enthone and Alpha.

On the laminate side, Rogers’ acquisition of Arlon coupled with Isola’s financial outlook gives reason for concern over how the supply chain will change.

For the rights to OMG and Alent, Platform will pay, in aggregate, about $2.67 billion, including assumed debt. That will add to the debt Platform assumed when it acquired MacDermid in 2013 for $1.8 billion.

Platform paid nearly $40 million in interest in the first quarter alone, and its operating profit for the period was just $2.2 million. The additional acquisitions will further stress a balance sheet that carried $1.4 billion in debt as of Dec. 31. The weight of these transactions is making folks inside and outside the industry a bit cautious, with credit rating service Moody’s among those expressing reservations about the debt load.

Dan Leever, the man at the helm of Platform following its buyout of MacDermid, knows the PCB industry inside and out, but it’s unclear how much further they can go before running into a Viasystems-like situation.

Likewise, just last month Moody’s also went negative on Isola, citing deteriorating credit-worthiness due to dwindling cash on hand, the lack of a credit facility, and higher debt leverage. “Moody’s expectation of weakening business trends could result in additional cash burn in 2016, further compromising the company’s liquidity,” the firm wrote.

Isola’s troubles come at the same time Rogers is said to be phasing out certain lower-cost equivalents to its own 4300/4350 low-loss materials acquired with its purchase of Arlon in January. According to PCB fabricators I have spoken with, especially smaller ones, the effect has been immediate and pronounced: longer lead times and rising prices.

How soon will the impact be felt by OEM customers? As lines are pared, manufacturers (and likely, OEMs) face higher costs as they are forced to reevaluate materials and change their designs.

Longer-term, will a substantial world market share coupled with staggering debt service slow new product introduction? Will the incentive remain to invest heavily in R&D?

Much of the hand-wringing over consolidation to date has centered on ensuring a secure supply of PCBs to the US Defense Department. But US spending on military electronics, in the neighborhood of $11 billion annually (not including missiles), is a fraction of the worldwide electronics market. What will happen once the IBMs, Ciscos, Samsungs and Apples feel the burn? And which disruptors will seize the opportunity?

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