Market Insight

Skyworth Group acquires Altech UEC from Altron

February 04, 2019  | Subscribers Only

Samuel McLaughlin Samuel McLaughlin Senior Research Analyst, Service Provider Technology

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Skyworth Group has concluded the acquisition of Allied Electronics Corporation Limited (Altron)’s set-top box manufacturing business (Altech UEC South Africa). Altron announced in Q3 2018 that it was close to selling off the business, with the Competition Commission giving the regulatory nod of approval in Q1 2019. 

Our analysis

Altron UEC entered the South African set-top box manufacturing market in the late nineties, being the primary supplier to the country’s sole satellite and terrestrial operator, Multichoice. Other companies have since struggled to gain a foothold in SA, largely because of restrictive legislation. The removal of competition laws designed to promote local manufacturing has now opened the country to new incumbents.

Altron’s manufacturing businesses cannot compete with larger set-top box players. Due to reliance on a few customers, the company is unable to leverage economies of scale. By comparison, international players like ARRIS and Technicolor, have, through several strategic acquisitions, both achieved optimized cost structures from selling boxes globally.

This change in dynamics prompted a review of Altron’s direction in Q1 2017, when Mteto Nyati took leadership of the then family-controlled business. Since then the company has focused on executing its ‘One Altron’ strategy, underpinned by selective investments in new focus areas including the Internet of Things (IoT), security, cloud services, and data analytics. The company has stated its goal remains delivering double-digit growth.

The disposal of Altech UEC is therefore a consequence of Altron’s plans to position itself as an information and communications technology (ICT) player across these verticals. Altron’s set-top box assets are among others, including its Powertech transformers, that the company deemed to be less relevant to its strategic direction.

Skyworth Group is already a mature Chinese enterprise, and this move ties in with its overall global expansion strategy. The reasons for this strategy are evident; despite the company shipping 15.6 million STBs in 2017, making it the fifth largest supplier in the world, over 90% percent of these shipments were confined to the APAC region.

Skyworth has now set up branches or offices to distribute its products in over 100 countries along with setting up R&D centres globally, including one in South Africa. Skyworth plans to continue building up its global supply chain systems further with oversea production facilities in new regions.

Skyworth’s acquisition of Altech UEC is also not its first foray into the South African market. In 2015, it announced its factory in Johannesburg, had successfully completed its first shipment, delivering a total of 70,000 set-top boxes across South Africa, after becoming the first company to pass South Africa’s rigid governmental requirements for DTT STBs. It has also launched its G6 Android TV in the region.

This acquisition should help Skyworth to partially fulfil its ‘edge manufacturing’ strategy and meet future set-top box manufacturing requirements along with strengthening its broadband and mobile strategy in South Africa and other sub-Saharan African countries. The addition of Altech UEC provides Skyworth with additional production capacity and reduced time-to-market for its customers in this market segment in a low-cost manner.

Altech UEC’s reach is limited to Africa, and it is unlikely this acquisition will help Skyworth expand into the rest of EMEA, particularly in higher value European markets. Skyworth acquired Vienna-based STB manufacturer Strong in 2015, who had a sales and redistribution network across 20 countries in Europe. Skyworth has not been particularly successful in leveraging this network for growth in the region.

This move signals Skyworth’s continued focus on the STB space, which contrasts against persistent questions over set-top box operations at ARRIS, Samsung, and Technicolor. Any changes in the STB landscape could open doors for Skyworth to become a major player within the EMEA set-top box market through organic growth or perhaps further acquisitions.

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