Sky/Amstrad deal impact

22 August 2007
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23 August 2007 | Paul Snell

Sky's proposed £125 million takeover of Amstrad could damage its relationships with other suppliers, an analyst has warned.

Amstrad provides 30 per cent of Sky's set-top boxes with the rest supplied by other developers such as Pace Micro, Philips and Thomson. But Carl Gressum, senior analyst at consultancy Ovum, said other suppliers would not want to compete with an in-house provider.

"From a business point of view it must be rather unsettling for the set-top box vendors to see a huge European customer doing backwards integration. This deal is unlikely to go down well with Sky's suppliers, which could imply future issues with the supply chain," he said.

He added suppliers could be less motivated to provide innovation and development if they can only supply lower-range boxes that leave them with lower profit margins.

Sky, which accounts for 75 per cent of Amstrad's revenues, said the deal would provide it with greater supply chain efficiency and help cut the group's procurement costs - profits previously made by Amstrad would now be retained by Sky and it would shorten the supply chain. Sky added in-house operations would give it greater control over design and specifications, leading to more innovation and improvements.

A spokesman for the firm said it was unable to comment further on how this would affect supplier relations and procurement benefits while the offer for Amstrad was ongoing. An Amstrad spokesman said it would be business as usual with its own vendors.

The deal could be further complicated by an Office of Fair Trading investigation into whether the proposed takeover would damage competition for customers.

SMaug2007

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