2012 was a reminder of the somewhat fragile nature of the customer-manufacturer outsourcing relationship.
A pair of Top Tier EMS companies absorbed potentially staggering blows from the losses of their largest customers in 2012, a year in which a heretofore fast-growing mid-tier EMS also saw its largest customer shrink.
To recap, in June, RIM announced it would cut ties with Celestica. (RIM also dumped Flextronics.) Then in the third quarter, Juniper let it be known it would depart from Plexus. This was an even bigger surprise, as Juniper not only made up 16% of Plexus’ sales, but had been the EMS firm’s largest customer since 2003.
Also, General Dynamics trimmed its relationship with No. 43 OnCore, and No. 29 Fabrinet’s largest customer, Oclara, terminated their relationship, although that move was seen as a negotiating ploy.
Elcoteq, RIP. To see what the loss of a leading customer can do, we need look no further than Elcoteq. With the loss of Nokia, the once-massive Elcoteq business evaporated, although to where, no one seems entirely sure. One likely suspect: Eolane. While as of March last year, the bankrupted Elcoteq had shuttered a total of seven operations in Shenzhen, Switzerland, Finland, Luxembourg and Mexico, Eolane, the French EMS, was busy acquiring its sites in Estonia and India. It’s a sad demise for Elcoteq, which ranked sixth in revenues among EMS companies as recently as 2008.
Meanwhile, No. 35 Eolane has emerged as France’s second-largest EMS, behind No. 21 AsteelFlash. (France did not have an entry on our original list, which covered calendar 2008.) Both firms are looking at additional growth through acquisitions, with AsteelFlash having gobbled up former Top 50 entrant ElectronicNetwork in August.
2012 was a tough year for most EMS companies. Outside of M&A activity, it’s tough to grow when the end-markets are sliding.
At least a dozen companies declined year-over-year, with Flextronics leading the way thanks to its changing business model, which saw it exit the low-margin PC ODM business. Celestica and SIIX were among the largest revenue decliners, but SRI Radio Systems arguably had the worst year, declaring insolvency before being snapped up by TQ-Group of Germany.
A record 20 companies topped the $1 billion mark, although that comes with the disclaimer that this year we began including the ODMs (see below). Foxconn grew the most, up nearly $13 billion (slightly more than the size of Celestica and Sanmina combined). The newest entrant, No. 19 Nam Tai, was also the biggest gainer, up a startling 91% (not a typo) from 2011. Mergers and acquisitions notwithstanding, other big winners included No. 25 GBM, No. 30 3CEMS, No. 33 Computime and No. 42 Key Tronic.
The ODM effect. Hardcore Circuits Assembly Top 50 watchers might ask, “Where did all these Taiwanese companies come from?” The answer is they were always around, just not included. The reason: ODMs have for various reasons traditionally been excluded from EMS company lists.
Lately, we’ve found the rationale for separating the two groups weak. ODMs generally compete with EMS companies for business in certain large sectors (computing, networking, consumer), and several so-called EMS companies (Foxconn, Flextronics, 3CEMS, Sanmina, to name a few) have for years operated what analysts refer to as ODM businesses. No list we know of has discounted the ODM sales from EMS revenue, however. Instead, they seem to dismiss most of the Taiwan ODMs, yet include their Western counterparts. By definition, an ODM designs and manufactures a product to be branded by another firm. Every electronics end-product that’s sold is branded in one way or another. And ODMs today are chasing margins as much as markets, meaning they are coming in closer competition with the “pure” EMS firms. We find the distinction between EMS and ODM too fine to be relevant today, thus the presence of several “new” listings.
To muddy the waters further, not every company that is called an ODM meets that definition. Two big Acer spinoffs, Qisda and BenQ, sell primarily their own branded goods. Thus, they aren’t listed here. On the other hand, Wistron, another Acer spinoff, makes the list because the IT, computer and consumer electronics it designs and builds are on behalf of OEM customers, as does TPV, despite a joint venture last spring that left it owning 70% of Philips’ TV division.
Insofar as successes in 2012 went, Nam Tai’s surge was the story of the year. The China-based company finally saw its investments in LCD modules for smartphones and tablets pay off, and was aided by sales of LCDs to the automotive industry, particularly US OEMs.
Can it last? Nam Tai has invested heavily in capacity in southern China, and has another 1.2 million sq. ft. “parcel” of land that it plans to develop – twice the size of its present Shenzhen campus. This is all the more amazing because Nam Tai says its two existing factories are capable of about $150 million in revenue per month each, which suggests its current capacity utilization is around 30%.
Hits and misses. We overstated OnCore’s revenue last year. We pegged it at $640 million on the basis of incorrect information that Victron, which it acquired, had much higher sales than it did. The correct revenue was $420 million, per the company. And the rule of thumb for flex PCB producers is that 40% of their revenue comes from assembly. Unfortunately, we miscalculated for Nippon Mektron last year and inadvertently gave it credit for 60%. Finally, apologies to 3CEMS, which we listed as a Chinese company, when in fact it is Taiwan-based.
All company revenues reported here are converted to US dollars (Table 1), and to the extent possible, we use calendar 2012, regardless of any individual company’s specific fiscal year. Because of differences in fiscal years and constantly fluctuating currency rates, company-reported revenues might vary somewhat from what is shown here. As always, any errors are our own.
For those who are wondering which EMS companies might have made the cut had we continued the practice of ignoring most of the major ODMs, that partial list would include (alphabetically) CTS, Scanfil, Selcom, SVI Public Co. and TQ-Group.
[Ed.: To enlarge the figure, right-click on it, then click View Image, then left-click on the figure.]
Ed: For the 2011 Top 50, click here.
For the 2010 Top 50, click here.
For the 2009 Top 50, click here.