Mid-tier companies (those with 100 to 1,000 employees and revenues under $2 billion) represent a large portion of the business landscape. Market forecasters and industry analysts alike consider this segment of the industry "the sweet spot" with the largest growth potential. To compete globally in an effective manner, however, middle-market companies know they must focus on their core businesses and do everything possible to enhance their products, lower their costs and provide the best value to their customers. Continued consolidation could have far reaching effects, not only on the electronics industry itself, but on the customer and end-user communities it serves.

The direct impact is that, in addition to the obvious effect of limiting competition, consolidation also reduces creativity and innovation, and will certainly reduce the overall investment in new technology currently undertaken by many smaller companies striving to stay ahead of the competition by designing and developing next-generation equipment. In the long run, these factors can then take their toll on the general health of the electronics industry in the United States as well as our global superiority in these advanced technologies. As larger companies get more and more involved in noncore business areas, they tend to lack the requisite background, experience and talented people to provide customers with the best value solutions to their unique problems.

For example, at Telephonics we specialize in intercommunication management systems and imaging radar systems for military aircraft. It is a niche market that requires a high level of technology and mission-requirements knowledge evolved over several decades. The nurturing and honing of these technological skills requires a thorough understanding of our customers' operational and environmental requirements and platform capabilities to ensure optimally performing and cost-effective systems.

Companies whose survival depends on maintaining technological leadership in their niche product lines will invest resources, both financial and human, to ensure they advance the state of the art of their products. When a product is the principle focus of a company's efforts, a higher quality, better performing system is created. If another (larger) company with more diversified interests adds these products to its stable of offerings the same level of focus and attention would not be possible. The benefits derived by the end customer and the end users are significantly diminished due to this lack of focus and management emphasis.

Before embarking on further consolidation among second- and third-tier companies the above factors should be carefully weighed. The strategy for maximum sustained growth for small and midtier companies is to focus on their strengths, building and expanding core technologies and leveraging customer relationships. The better strategy for the would-be acquirers is to continue to rely on the expertise and the depth of knowledge residing with the smaller and more agile companies and the investments they make as part of their cost of doing business.

Joseph J. Battaglia, President and Chief Executive Officer Telephonics Corp., Farmingdale, N.Y.