2011: A Very Good Year for EMS Print E-mail
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Written by Randall Sherman   
Tuesday, 04 September 2012 02:37

The EMS market continued its extraordinary growth surge.

The worldwide contract electronics manufacturing market made another large jump up in 2011, increasing nearly 12% in revenue, following an extraordinary 2010 in which the industry expanded by 37%. Whereas most industry observers expected a modest growth rate in 2011, no one anticipated this strong a market, which was driven by continued demand for smartphones and new mobility devices (iPhones, iPads and e-readers). The largest beneficiary of this growth was Foxconn, the dominant subcontractor of these devices for a variety of key OEMs. Provided Apple continues its spectacular growth in revenue, as most analysts predict, Foxconn will continue to be lifted by its customer’s rising tide.

The really good news is that virtually all industry participants made money in 2011, with very few exceptions. In fact, the contract manufacturing industry made more money in 2011 than at any time in history, although this may not continue if the past is any indicator. Foxconn once again set the record ($2.7 billion, not a great result given its total revenue of $111 billion), followed by HTC ($2.1 billion), and to a lesser extent a number of Asian ODMs. Only a minority of EMS firms did not grow or make money in 2011.

Figure 1 presents the summary forecast for the worldwide revenue growth of the EMS market from 2011 to 2016. Given the minor differences in business models between EMS firms and ODMs, NVR foresees little separation between the two types of suppliers with regard to customer services and revenue growth. ODMs should underperform EMS companies over the forecast period as a result of a riskier business model that relies on giving preference to branded and low-end computer, communications, and consumer products. To their credit, ODMs are usually better able to streamline their production methods and create economies-of-scale through the concentration of components and vertical integration, but ultimately all profits get driven to the margin over time. Because EMS firms manufacture a wider range of products, and can leverage their operations in different ways, it is believed that they will experience a slightly higher growth rate over the forecast period.

Figure 1

The shift in production to low-cost regions has been fully accomplished over the past several years. Today, we are seeing OEM customers requiring their EMS partners to manufacture products near the regions where they are to be sold. For certain high-volume products like mobile phones and PCs, OEMs need to leverage the lowest cost in manufacturing. However, for other products the labor cost differentials are becoming less significant when weighed against the total cost of production (including transportation and logistical challenges). Offshore product migration will still take place, according to NVR’s forecasts, but it will be at a more moderate pace.

Both EMS firms and ODMs will experience strongest growth from production in the communications, computer, and consumer market segments. Specifically, EMS companies will find very strong growth in e-readers, tablets, enterprise storage systems, and personal navigation systems, while ODMs are projected to experience very strong growth in tablets, e-readers, cellular handsets, notebook PCs, and digital cameras. In general, EMS firms will tend to excel in technology-intensive product areas and complex board assemblies, while ODMs will excel in manufacturing commodity/high-volume products such as motherboards, monitors, handhelds, and consumer electronics.

Foxconn continued its extraordinary dominance as the leading EMS firm in the industry, outdistancing its closest contender by more than three times in terms of revenue. Flextronics remained steadfastly in the No. 2 position, followed by two ODMs (Wistron and Quanta Computer), and Jabil Circuit (Table 1).

Table 1

Every year, New Venture Research conducts a financial and performance comparison and ranks the top 10 overall best-performing EMS companies. In 2011, HTC emerged as the EMS provider with the highest ranking score, followed somewhat distantly by Quanta Computer and Wistron, according to NVR’s metrics. Note that all of these high-performing companies were Asian ODMs. Jabil Circuit scored a respectable fourth in the rankings.

NVR has just published its market research study on the contract electronics manufacturing services market in a report titled, “The Worldwide Electronic Manufacturing Services Market, 2012 Edition.”  More details can be seen at newventureresearch.com/wp-content/uploads/2012/06/ems2012-RS.pdf.

Randall Sherman is president and principal analyst of New Venture Research (newventureresearch.com), a market research and consulting firm specializing in the electronics manufacturing industry; This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

 

Last Updated on Tuesday, 04 September 2012 13:55
 

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