Kontron Merges with S&T, Gets Access to Software, Manufacturing

Kontron and S&T Deutschland Holding on Monday announced that shareholders of both companies have agreed to merge the two companies. Kontron, which is known for its servers, small form-factor PCs, and other specialized hardware, will retain its brand, but will gain access to S&T's software and contract manufacturing capabilities. Meanwhile, S&T will broaden its hardware portfolio. Combined, sales of the two companies are expected to hit the $1 billion mark in 2017.

Kontron is one of the world's largest makers of industrial rackmount servers and embedded systems, many of which are specialized and do not fall into traditional commodity categories. Last year was particularly tough for the company: its revenues decreased by 18% year-over-year to a385.1 million ($440 million), its gross margin dropped to 14.6% from 26.1% a year earlier, and its EBIT loss was a141.7 million ($161.7 million), reports LightReading. In the light of challenging financial situation, Kontron began talks with S&T regarding the merger late in 2016, which in turn concluded in June.

The merger with S&T will give Kontron access to S&T's software as well as to Ennoconn, a subsidiary of Foxconn that designs and produces motherboards and systems for specialized and embedded applications. Outsourcing of manufacturing will naturally shrink costs for the new company, whereas the ability to offer software, hardware, and services will help the newly established entity to better address needs of its customers and sustain strong margins. In general, the consolidation of hardware and software is what has been driving the merger trend on the sever market for many years.

Kontron is one of a few suppliers of servers that have offered ARM-based servers. For example, at this year's Mobile World Congress the company demonstrated the world's first and only 1P server running Applied Micro/MACOM's X-Gene 3 processor with 32 custom ARMv8-A cores and 32 MB of cache. It will be interesting to see how the merger between Kontron and S&T affect the former's ARM server plans.

The two companies hope that the merger, combined with internal restructuring of Kontron, will result in faster decision-making and shorten development times and evolutionary cycles. From a financial point of view, Kontron and S&T expect their combined revenues to be between a860 and a890 million ($993 - $1028 million) in fiscal year 2017, and intend to break the a1 billion ($1.155 billion) sales milestone in 2018.