Vol. 27, No. 5 May 2017 Outsourcing in Japan Outsourcing of electronic assemblies by Japanese DNA. There was also the issue of is the largest supplier (see Table Japanese companies has always been quality. Japanese OEMs were known for their 2), with an estimated 2.5 million square feet considered one of the “final frontiers” for intense dedication to 100% total quality and of manufacturing capacity, followed by EMS suppliers. Japanese OEMs have didn’t trust any third-party suppliers to live up other Tier 1 EMS suppliers such as Delta, always considered manufacturing one of to their standards. And there were cultural , Jabil, , and Sanmina. But it their core competencies, and for a long issues that involved language and behaviors is the domestic suppliers that are of interest; time resisted engaging EMS companies. that were unique to the Japanese, resulting in these include Di-Nikko Engineering, SIIX, Additionally, the supply chain was well these OEMs simply being more comfortable UMC, and a recently discovered EMS established for the parts and mechanical working with Japan-based companies. company named Kaga Electronics. assemblies that are essential to Breaking into the Japanese EMS market was Kaga Electronics is a sizable $3 billion mechanical products like copiers, fax like trying to break into Fort Knox for many conglomerate consisting of the EMS machines, and other office automation Western EMS firms. division ($700 million); a parts, components, equipment. But a number of factors Yet today, EMS in Japan is quite pervasive, and power supply business named Taxan; conspired to bring the Japanese to the though it did not happen overnight. The large and various other enterprises in the outsourcing table. First, there were the Japanese OEM firms like Sony, Toshiba, electronics sector. MMI hadn’t even heard of rising costs of labor, land, and taxes that NEC, Fujitsu, Hitachi, and others the company until the Director of Sales, made manufacturing in Japan experimented with outsourcing end-of-life Terry Kearney, and the General unaffordable. Electronic products coming products such as office automation and Manager/Sales, Virgil Chen, called us up to out of Japan had always been expensive, consumer electronics products. These tell us about Kaga and how the EMS but starting in the 1990s, they were commodity products never made much business in Japan works. Kaga maintains becoming even more costly. Japanese money for the EMS companies and were low-cost manufacturing facilities all over the OEMs watched as their Western often engaged to open the door to more globe, including in China, Thailand, competitors gained competitive lucrative opportunities. Yet by 2015, the EMS Malaysia, and the Czech Republic, in advantage in price, supply chain, market in Japan was estimated to have grown addition to two facilities in Japan. delivery, and repair as a result of their to $6.3 billion in revenue, according to a New The company was founded in 1992 when relationship with EMS subcontractors. Venture Research report, The Worldwide EMS was just starting to take off. The Even worse, asset utilization was Contract Manufacturing Services Market – people at Kaga found it very difficult to get abominable—sometimes as low as 10– 2016 Edition, indicating that a fair amount of OEMs to agree to outsource, yet the 15%—as expensive manufacturing outsourcing was taking place (see Table 1). company was able to convince firms like equipment sat idle and facility space was left empty, making for a very poor return on invested capital. The old business model of vertical integration was not Some articles in this issue holding up to a new world of the Cover Story…………………………………………………………………………………….1 extended enterprise that hedged against Outsourcing in Japan changing technology and provided better Decent Start for US‐Traded Group…….……………...…………………..……………….…3 expertise, thereby offering a solution to Some Quarterly Results.……………………………………………………..……………….……4 managing in-house capacity loads. More Foxconn Invests Another $1.5B in Robot Development……………………………..7 important, it made economic sense though it went against the grain of Table 1 industrial (HVAC), automotive, and cultures to prefer to work together (e.g., EMS/ODM APAC Revenue, 2015 medical industries. The company is Europeans, Asians, and Americans). seeing strong growth in the electronics Therefore, penetrating EMS in Japan Country Rev. ($M) Percent assemblies in these industries as OEMs will require an indigenous operation. Australia 175 0.1% embed sensors, intelligence, and Internet There appears to be significant potential for this, as the world continues to Cambodia 65 0.0% of Things devices into transportation and other industry products. embrace the benefits of outsourcing. China 230,932 77.3% The old captive subcontracting Despite this, the APAC region India 7,346 2.5% partnership system, commonly known as experienced a decrease in revenue Indonesia 2,045 0.7% keiretsu, has been falling into growth compared with the other regions in 2015–2016. While it dominated the Japan 6,335 2.1% obsolescence over the last 20 years. This has proved difficult for certain sectors world in terms of total production Korea 15 0.0% where costs are forcing OEMs to look (accounting for almost 70 percent of all Laos 50 0.0% abroad for further reductions. In assembly), the downturn in demand for Malaysia 15,813 5.3% traditional consumer electronics, leading digital TVs, desktop computers, and, to a Japanese OEMs like Sony, NEC, and certain extent, notebooks contributed to Philippines 757 0.3% Mitsubishi are increasingly engaging this decline. The region continues to Singapore 6,620 2.2% EMS providers and ODMs as primary attract high-volume electronics subcontractors to manufacture their assembly, mostly for the IT and Sri Lanka 25 0.0% products. consumer electronics industries. Of Taiwan 20,973 7.0% Outsourcing has come to be an greatest concern, however, is the steady Thailand 4,978 1.7% accepted practice in Japan today, but the rise in base wage rates—all across the Vietnam 2,808 0.9% domestic EMS companies definitely have board—particularly for the common the edge, as it is not uncommon for assembly worker. Total 298,937 100% heterogeneous

Oki, Sharp, Sony, and Olympus to subcontract office automation PCB Table 2 assemblies. However, Kaga had a Leading EMS Companies in Japan, 2015 secret advantage via its parts, components, and power supply Company Location Sq. Ft. (Est.) business, which had sold products to Delta Osaka 50,000 these companies for many years. Delta Tokyo 80,000 “We’re in it for the long run,” states Kearney, who says that Di‐Nikko Engineering Tochigi (4 facilities) 348,000 longevity and trust were the most Flex Ibaraki 137,000 important factors in getting Kaga’s Foxconn Nagano 1,000,000 customers to embrace outsourcing. Foxconn Sakai 500,000 In fact, treating the customer first is Foxconn Yokohama 1,000,000 a philosophy preached widely by Jabil Gotemba 38,000 the company. And Kaga being a Japanese company was critical, in Jabil Hachiouji 24,000 that the culture and language were Katolec Kagawa (2 facilities) 162,982 the same, and once it was Nippon Mfg. Mizusawa 367,648 established that it could achieve 100% quality on a reliable basis, the Nippon Mfg. Mizusawa 264,825 doors began to open. “Once one Nippon Mfg. Mizusawa 112,399 cow crosses the river, the rest will Nippon Mfg. Mizusawa 110,441 follow,” declared Kearney. Trust Pegatron Tokyo 300,000 made it easy to transition other Sanmina Jasu 150,000 programs into the pipeline. Kaga has grown into a Tier 2 SIIX Sagamihara 200,000 supplier in Japan, focusing on low- UMC Ageo 50,000 volume, high-mix assemblies in the UMC Miyazaki 54,955 UMC Saitama (2 facilities) 77,530

Manufacturing Market Insider, May 2017 2 Decent Start for US-Traded companies, GAAP gross margin in Q1 exception. In the year-over-year Group was a combined 9.2%, down 90 basis comparison, total GAAP net income points sequentially and down 130% year for the three companies sank 10% over year. Flex, Sanmina, and Plexus despite sales growth of 1.6%. Jabil Combined first-quarter 2017 revenue succeeded in raising their gross margins bore nearly all responsibility for this for the six largest US-traded EMS from 4Q2016, while only Flex and decline. Q1 net margin for the GAAP providers rose 2.3% year over year, a Plexus were able improve their margins reporting companies was 1.36%, down solid start on which a growth year could from the year-earlier period. 750 basis points sequentially and 170 be built. Together, the five companies in Q1 basis points year over year. In Q1, the six providers generated produced a GAAP operating margin of sales totaling $14.63 billion, up from 2.7%, down 40 basis points sequentially $14.3 billion in the year-earlier period. and flat year over year. Two providers— The prime reason behind this increase Sanmina and Plexus— turned in Robust First Half Projected was , which increased its sales increased GAAP operating margins, by 8.6% year over year; next was above 3%, led by Plexus with a 5.9% Combined revenue growth of the Sanmina, which posted a 4.4% result. Flex, Sanmina, and Plexus were six largest US-traded EMS providers increase. Despite the group’s the only providers to increase their in the first half will be encouraging, respectable 2.3% growth from a year GAAP margins from the prior quarter, if MMI’s estimates hold true. MMI is earlier, sales performance varied widely, and Flex and Plexus boosted their projecting that the group’s first-half ranging from Celestica’s 8.6% growth to margins from a year earlier. As for the sales will total $29.42 billion, up 7.5% Plexus’s decline of 2.3% (Table 3, lone IFRS reporting company, Celestica year over year. Given this projected below). raised its IFRS operating margin from increase, hopes for a growth year now On a sequential basis, the group’s the previous quarter and remained flat rest on the group’s second-half revenue fell by 7.5% in Q1, a quarter from the year-ago period (Table 3). performance. in which segments such as consumer On a sequential basis, combined According to MMI’s estimates, electronics and computing are prone to GAAP net income for the five first-half sales will grow from a year seasonality. Sales declines at all six companies in Q1 fell far faster than sales earlier at five out of six providers, providers prevailed, with Jabil did. Aggregate net income of $178.4 with double-digit gains projected for registering a double-digit drop. million dropped 40.5%, in contrast to the Flex. Sales increases at those five Five out of six providers follow sales decline of 7.3%. Net income was providers will outweigh revenue GAAP accounting rules, while the down from the prior quarter at four out declines at the remaining company, sixth, Celestica, adheres to IFRS of five companies, with Plexus being the Plexus (Table 4, p. 4). reporting standards. For the five GAAP lone

Table 3: 1Q2017 Results for the Six Largest US‐Traded EMS Providers (M US$ or %)

Qtr.‐ 1Q17 4Q16 1Q16 1Q17 4Q16 1Q16 1Q17 4Q16 1Q16 Yr.‐Yr. 1Q17 4Q16 1Q16 Company Qtr. Gross Gross Gross Oper. Oper. Oper. Sales Sales Sales Chg. Net Inc. Net Inc. Net Inc. Chg. Marg. Marg. Marg. Marg. Marg. Marg.

Flex 5,863.0 6,115.0 –4.1 5,772.7 1.6 6.9% 6.5% 6.6% 2.8% 2.7% 1.7% 86.9 129.5 61.3

Jabil 4,445.6 5,104.9 –12.9 4,403.6 1.0 7.9% 8.3% 8.9% 1.8% 3.2% 3.5% 20.7 88.0 78.9

Sanmina 1,682.3 1,720.0 –2.2 1,611.2 4.4 7.9% 7.7% 8.4% 3.7% 3.5% 3.8% 31.9 44.9 30.4

Benchmark 566.5 607.5 –6.7 549.2 3.1 8.2% 9.0% 9.2% 2.4% 4.1% 3.0% 9.7 18.6 11.1

Plexus 604.3 653.1 –7.5 618.7 –2.3 10.6% 9.4% 8.6% 5.9% 3.9% 3.8% 29.3 19.1 16.8

Subtotal/avg. 13,161.7 14,200.4 –7.3 12,955.4 1.6 9.2% 10.1% 10.5% 2.7% 3.1% 2.7% 178.4 300.0 198.5

Celestica 1,469.9 1,623.7 –9.5 1,353.3 8.6 8.1% 7.9% 8.0% 2.3% 2.0% 2.3% 22.8 20.9 25.6

Total/avg. 14,631.6 15,824.1 –7.5 14,308.7 2.3 All results are based on GAAP except those of Celestica, which adopted IFRS reporting. With the exception of sales, GAAP and IFRS results are not necessarily comparable.

Manufacturing Market Insider, May 2017 3 Table 4: 2Q2017 Guidance and Estimates for the Six Largest US‐Traded Providers (sales in $B except as noted)

Esti‐ Q2 EPS EPS Q‐Q Qtr.‐Qtr. Yr.‐Yr. 1H17 Q2 Guidance 1Q17 2Q17 Q2 Mid‐ 1Q17 2Q16 1H16 mated Mid‐ Chg. at Company Estim. Estim. Estimated Adjusted Adjusted Guidance point Sales Sales Sales Change point Midpoint Chg. (%) Chg. (%) Sales EPS* $ EPS* $ (%) $ (%)

Flex 5.7–6.1 5.90 5.86 0.6 4.34 36.0 11.76 10.11 16.4 0.16–0.20 0.18 0.29 –37.9 Jabil 4.25–4.55 4.40 4.45 –1.0 4.31 2.1 8.85 8.71 1.5 0.19–0.39 0.29 0.48 –39.6 Sanmina 1.7–1.8 1.75 1.68 4.0 1.67 4.9 3.43 3.28 4.6 0.72–0.77 0.75 0.76 –2.0 Celestica 1.5–1.6 1.55 1.47 5.5 1.49 4.4 3.02 2.84 6.4 0.29–0.35 0.32 0.29 10.3 Benchmark 565–585 M 0.58 0.57 1.4 0.58 –0.7 1.14 1.13 1.2 0.31–0.35 0.33 0.34 –2.9 Plexus 595–625 M 0.61 0.60 1.0 0.67 –8.5 1.21 1.29 –5.6 0.68–0.76 0.72 0.84 –14.3 Total/avg. 14.79 14.63 1.1 13.05 13.3 29.42 27.36 7.5 Q2 estimates equal midpoint of Q2 guidance. First‐half 2017 estimates equal Q1 sales plus midpoint of Q2 guidance. *Adjusted EPS may not be comparable from company to company.

First-half projections are based on was $5.7–6.1B and non-GAAP EPS offset by a decline in the medical second-quarter estimates set equal to was $0.24–0.28. Flex’s inventory came business. Looking forward, HRS is the midpoint of sales guidance for each in at $3.4B, relatively flat y-o-y, and expected to be up 5–10% q-o-q, company. overall cash cycle days dropped by 5 reflecting strength in the automotive Estimated Q2 sales for the six days y-o-y to 14 days. segment, driven by the AGM business. providers add up to $14.79 billion, up Flex’s end-market dynamics and d) Consumer Technology (26% of 1.1% from Q1 and increased financials are as follows: a) sales) was down 17% q-o-q to $1.5B, exponentially (up 13.3%) versus the Communications and Enterprise which was better than previous year-ago period. In the sequential Compute (34% of sales) was down 6% guidance calling for a decline of 20– comparison, Q2 sales are projected to q-o-q to $2.0B, which was in line with 30% q-o-q. This reflects Flex’s exit rise at five providers and these gains are previous expectations calling for a from the Chinese Motorola/Lenovo sufficient to offset an estimated drop at decline of 5–10% q-o-q. Lower businesses. This segment is expected to the remaining provider. Celestica is the revenues reflected declines in the grow 5–15% q-o-q in the June quarter, only provider with a projected legacy server and storage businesses reflecting better seasonality and a ramp- sequential increase of more than 5%. (down 30% y-o-y), largely offset by up in Bose business. On a year-over-year basis, forecasted growth in For the June quarter, Flex guided to sales increases at four providers will be converged infrastructure and cloud revenues/EPS of $5.7–6.1B/$0.24–0.28. enough to offset declines for the other offerings. For the June quarter, Flex On a segment basis, the company two providers. Flex is expected to boost expects the segment to be down 5–15% expects CEC revenues to be down 5– its Q2 revenue by double digits from a q-o-q, reflecting continued weakness in 15% y-o-y, IEI sales to be up 0–5% y- year earlier, at 36% (Table 4). servers/storage. b) Industrial & o-y, HRS business to be up 5–10% y-o- Guidance suggests that adjusted EPS Emerging Industries (22% of sales) was y, and CTG segment revenues to be up for the June quarter will increase up 14% q-o-q to $1.3B, which was 5–15% y-o-y. In addition, management sequentially for only one provider, above the midpoint of expectations expects interest expense of ~$30–35M, Celestica. Based on guidance from Flex, calling for 10–15% q-o-q growth. The an adjusted income tax rate of 10–15%, Plexus, Benchmark, Sanmina, and growth was driven by strength in capital and a share count of ~538M. Jabil, these companies expect that equipment and solar trackers, in (SANM). The adjusted EPS in the June quarter will addition to healthy demand in industrial company reported quarterly decline from the prior quarter. home and lifestyle products. Flex revenue/EPS of $1,682 million/$0.76. expects the segment to show 0–5% Gross margins for the quarter were Some Quarterly Results growth in the June quarter, driven by 8.1%. Operational expenditure was $65 new programs in energy and appliances, million, at the low end of the Flex (FLEX). Flex had 4Q17 sales of partly offset by declines in capital and company’s $65–$67 million $5.86B and non-GAAP EPS ex-options office equipment. c) High Reliability expectation. of $0.29. Operating margin ex-options Solutions (18% of sales) was up 2% q- Sanmina’s end-markets analysis: a) of 3.5% was flat y-o-y and in line with o-q to $1.0B, which was modestly in Communications Networks (37% of expectations. F1Q18 guidance of sales line with expectations calling for 0–5% sales): Sales were $622M; there were q-o-q growth. Growth reflected an shortages here and the notable issue Manufacturing Market Insider, May 2017 uptick in the automotive segment, partly was the lead times extending out 4 (positively, optical was solid). Communications weakness in optical (~20–30% of the Life Sciences (34% of sales): Sales in this should be up, with networking, routing, segment) and softness with Arris segment were down 3% sequentially. optical, and better wireless demand (gateways). d) Medical Devices (15% Management guided this segment to be up creating a pipeline of opportunities. b) of sales): The segment was up 4% on a mid-singles q-o-q. c) Industrial/ Computing and Storage (17% of sales): y-o-y basis, and flat (0%) q-o-q. The Commercial (32% of sales): Sales were Sales in this segment came in at $286 segment remains steady with low- to down 7% sequentially, due to softer than million; the revenue was down and mid-single-digit growth y-o-y. e) Test expected demand from a single customer. program delays were seen (automotive and Instrumentation (14% of sales): Importantly, the weakness is not related to was up on solid demand for the quarter). The segment was up 40% y-o-y and up semiconductors, which implies a pure Sanmina expects improvements and the 18% sequentially. The company notes industrial company such as focus is on its cloud data center this segment is benefiting from higher GE/Coke/Intermec. The segment should businesses and the demand for new than expected semiconductor capital be flat q-o-q in June. d) automotive products. c) equipment spending. Defense/Security/Aerospace (16% of Defense/Industrial/Medical (46% of Benchmark guided the forward sales): This end market was sales): Sales were $774 million, with quarter to $565–585M/$0.31–0.35. On up 14% sequentially as demand returned Medical seeing solid demand offset by a segment basis, the company offered for the segment as a whole. Management program delays on the Defense side sequential guidance as follows: 1) believes the segment should be up mid- (which nonetheless has a strong pipeline Computing will be up ~20%. 2) singles q-o-q in the June quarter. of new businesses and mission-critical Industrial Controls and A&D combined Plexus guided the forward quarter to products). will be flattish q-o-q; industrials will be $595–625M/$0.68–0.76. The operating Sanmina guided to revenues/EPS of down low singles and A&D up low margins are being guided to 4.8–5.2%, $1.70–$1.80B/$0.72–0.77. On an end- singles. 3) Telecom will be down which is slightly above its target range of market basis, the company expects the >10%. 4) Medical Devices will be up 4.7–5.0%. Finally, regarding end markets following: 1) Communications Networks low singles. 5) Test and for the June quarter, the company offered will be up sequentially as the routing, Instrumentation will be up low singles. the following q-o-q guidance: 1) optical, and wireless areas ramp up; 2) From a margin perspective, the Communications is expected to be down Defense/Industrial/Medical will be flat company noted that it should see low teens. 2) Healthcare/Life Sciences q-o-q while building a pipeline of new operating margins of 3.75% at the should be up mid-singles q-o-q. 3) business in mission-critical products; midpoint (3.6–3.9%). Industrial/Commercial should be flat. 4) and 3) Computing and Storage will be up Plexus (PLXS). The company Defense/Security/Aerospace is expected on a sequential basis as cloud data center reported revenue/EPS of to be up mid-singles. businesses ramp up. $604.3M/$0.84, with operating margins Jabil Circuit (JBL). Jabil reported Benchmark Electronics (BHE). The at 5.4%. Notably, the company won 26 2Q2017 sales of $4.44B and EPS ex- company reported revenue and EPS at programs during the quarter, options of $0.48. Operating margins ex- $566.5M/$0.34. Notably, new booking representing about$202 million in options of 3.4% declined by 80 bps. wins equated to $118–149 million in annual revenue when fully ramped. 3Q2017 guidance for sales is $4.25–4.55B annualized revenue, with 21 engineering Plexus reported softer than expected and EPS $0.19–$0.39. awards and 27 manufacturing wins. top-line results driven primarily by 1) The revenue upside in Q2 largely came Finally, gross and operating margins communications and 2) lower than from the healthcare and packaging came in at 8.7% (–50 bps y-o-y) and expected revenue from a businesses achieving above plan. The 3.8% (30 bps y-o-y), respectively. commercial/industrial customer as well. EMS division is exceeding margin Benchmark’s end markets and Given comments disclosed from the improvement goals, driven by financials: a) Computing (18% of sales): call, overall head count reductions in Western Europe The segment was up 2% y-o-y and down networking/communications and better capacity utilization. The key 16% q-o-q. Management saw broad- were weak (Arris [10% of total swing factor for the company is Apple, based strength from both new and revenue], Ericsson, Harmonic, where Jabil noted there was no change in existing customers. b) Industrial Harris, and Ixia), and Micron saw a expectations. The Q4 Diversified Controls and A&D (39% of sales): The one-time slip in revenue that will be Manufacturing Services (DMS) revenue segment was up 4% y-o-y and flat on a recouped within the guide was important to get a sense of how q-o-q basis. Importantly, the company Industrial/Commercial segment. the Apple business was doing, and now breaks the segment into two pieces: Plexus’s end markets and financials: management continues to hold firm on the A&D contributed $104M (+2% q-o-q, a) Communications (18% of sales): $1.9 billion number. +14% y-o-y) and Industrial Controls Sales were down 18% sequentially and Positive management comments contributed $118M (–2% q-o-q, –14% y- the company saw “broad-based” included (1) Electronics Manufacturing o-y). c) Telecom (14% of sales): The demand weakness. Importantly, the Services (EMS) margin guidance of 4.2% segment was down 18% y-o-y and down decline is expected to continue into the for 4Q17, above the high end of 2–4% for 24% q-o-q. The telecom segment saw June quarter, which will be down low the segment; 2) high confidence in teens q-o-q. b) Healthcare/ Manufacturing Market Insider, May 2017 5 achieving 20% earnings CAGR in the agreement is subject to the approvals of significantly expanded its existing healthcare and packaging businesses, the general meetings of Kontron AG and manufacturing operations in the country which are about 15% of Jabil’s S&T Deutschland Holding AG. The following the acquisition of BuS revenue; and (3) ability to absorb any general meetings are to take place on Holding GmbH in 2014, while the potential upside in Apple with existing June 19, 2017 and June 20, 2017, French company Asteelflash established capacity, meaning capex is to stay in respectively. a presence in the country following the the $500–600 million range. It is planned that shareholders of acquisition of EN ElectronicNetwork Kontron AG, who do not choose the in 2012. cash compensation offered by S&T Of the global Tier 1 EMS providers, Deutschland Holding AG within the Sanmina and Jabil Circuit have Company News merger but exchange their Kontron AG operations in Germany, although it is shares in S&T Deutschland Holding AG reported that Jabil, which focused on Foxconn to Expand in shares, receive from S&T AG, Linz optoelectronics, has ended small series (Austria) an offer to contribute these production at the site and will focus on Hengyang shares into S&T AG, Linz (Austria), development only. Flex, the world’s Foxconn will join a group investing within the scope of a noncash capital second largest EMS provider, sold its $870 million in a new campus in increase, and thus exchange such shares EMS site in Paderborn in 2014 and has Hengyang to produce A/V equipment for shares of TecDAX-listed S&T AG, also transferred production at and tablets for Amazon, according to Linz (Austria). Flextronics Automotive GmbH & Co DigiTimes. KG to a site in Hungary and is focusing Citing industry sources, DigiTimes said Top 10 German EMS on R&D and prototyping at that site. Foxconn’s Integrated Digital Product Business Group has signed an agreement Providers Executive changes… BB Electronics with the Hengyang City Government to Accounting for 13.6 percent of has expanded its sales organization. build a precision molding demonstration European EMS revenues and 34.7 Johnny Madsen has joined the Danish park and an Amazon production center percent of those generated in Western EMS provider as Senior Sales Manager. in the city. Foxconn will team up with a Europe, Germany has played, and will He will be responsible for customers in group of undisclosed China-based continue to play, a key role in the Denmark and the North of Europe. companies on the site, the report said. It development of the European EMS “Johnny has extensive experience from is not clear how much each individual industry. the EMS industry and has a huge company will need to invest in the The industry is served by a large knowledge about electronics and is able project. number of companies, although the to facilitate each individual customer’s Production should begin this year, and majority are small to medium-sized with needs, with production in Denmark or will include 45 new production lines, the revenues below €10 million, and for China. With the new boost in our sales report said. Foxconn is expected to hire many revenues are below €5 million. organization we look forward to up to 15,000 additional workers. As with other countries in Western servicing even more customers in the The campus will build audio Europe, domestic players dominate the future,” a press release states.… equipment, tablets, smart phones, and market, with Zollner, Europe’s largest SanDisk co-founder and former other components. indigenous EMS provider, the clear President & CEO Sanjay Mehrotra takes Hengyang is located in central China. industry leader with 13 percent share of the helm of Memory and Storage Foxconn invested $38 million in its local revenues, as reported by Evertiq. Solutions provider Micron Technology. Hong Fujin Precision Industry The top 10 German EMS providers are: The appointment is effective May 8, (Hengyang) Co. subsidiary in 2012. 1. Zollner 2017. Mark Durcan will step down as 2. Leesys CEO and from the Micron board of Kontron Green Lights 3. TQ-Systems directors effective May 8, 2017, but will 4. Neways (Netherlands) serve as an advisor to the company until Merger with S&T 5. BMK Group early August.… STMicroelectronics Kontron’s supervisory board has 6. Asteelflash (France) has appointed Jean-Marc Chery as approved the conclusion of a merger 7. Katek Deputy CEO, effective July 1, 2017. agreement between Kontron AG and 8. Prettl Electronics Chery currently serves as Chief S&T Deutschland Holding AG. 9. MLS Operating Officer and, in his new role, The supervisory board of S&T 10. Tonfunk he will continue to report to Carlo Deutschland Holding AG has likewise Within the Top 10 there are two Bozotti, ST’s President and CEO. In this approved the conclusion of the merger foreign-owned groups, both of which new role, Chery will hold overall agreement. The notarization of the have acquired German companies. responsibility for Technology and merger agreement was planned to take Neways International, with Manufacturing as well as for Sales and place on May 3, 2017. The merger headquarters in Son, the Netherlands, Marketing.

Manufacturing Market Insider, May 2017 6 Inventec to Produce AI- mainly from , but has Selcom Acquired at Auction shifted part of its orders to Wiwynn. Based Smart Home Products While Inventec is currently the main by Turnaround Specialists for Apple, Says Paper supplier of servers for , Quanta A pair of private equity companies that specialize in distressed companies have Taiwan-based OEM Inventec reportedly has been actively competing for orders teamed up to acquire EMS provider has landed orders from Apple to produce a from Google and has expanded its server Selcom Elettronica. connected speaker device, according to a production capacities in North America Avenue Capital and Europa Investimenti Chinese-language Economic Daily News and Europe. wholly acquired the Italy-based EMS (EDN) report. company for €30.7 million ($33.6 The connected speaker will be Apple’s Foxconn Invests Another million). The deal includes Selcom’s first AI-based smart home device powered Chinese subsidiary Selcom Electronics by Siri and is expected to take on Amazon’s $1.5 Billion in Robot (Shanghai) and is expected to close June smart home assistant, Echo, said the report, Development 1. citing Kuo Ming-chi, an analyst at Taiwan- Foxconn Electronics has announced The company was auctioned by the based KGI Securities. an ambitious effort to push ahead with a Bologna Court, a move that followed Apple is expected to unveil the smart highly automated workforce by Selcom’s bankruptcy filing late last year. speaker during its annual WWDC 2017 increasing investment in its robot At that time, the asking price was €12.8 conference to be held in June, Kuo said, development subsidiary in Shenzhen, million for the Italian assets and €26 adding that the connected speaker will be China, as reported by Fudzilla. million for the entire company. priced higher than the US$179 for Echo. In January, it was reported that Selcom has been dogged with financial Inventec is the sole assembler of Apple’s Foxconn had begun automating its problems since 2015, when revenues fell wireless AirPod products, while Foxconn workforce over three testing phases, from €280 million to €200 million in one Electronics is the sole producer of with a benchmark of 30 percent year. At the time, it held €120 million Amazon’s Echo devices. automation at its Chinese factories by ($131 million) of debt. 2020. Now, the Taiwan-based contract In a press release, the investors said they manufacturer has announced an increase Taiwan Server Makers See plan to inject Selcom with new financial in robot-related research and and management expertise. Reshuffle of Orders from development of ¥10.39 billion ($1.51 , Facebook, Google billion). Since September 2014, more For Taiwan-based makers of servers for than 500 factories across Dongguan and American Standard Circuits direct sale to clients, there has been a Guangdong have invested over $630 Completes Asset Acquisition reshuffle of orders for servers used in cloud million in robots, and employees have of Camtech Technologies computing data centers from Microsoft, been retrained to focus on higher “value- Facebook, and Google in 2017, according added elements” in the manufacturing American Standard Circuits has to several supply chain producers. process. acquired the assets of Scottsdale, AZ- Microsoft, Facebook, Google, and In order to have more of its based Camtech Technologies, effective Amazon together account for 90% of subsidiaries involved in the development May 1. global demand for direct-sale servers and of robotic products, Foxconn has also Financial and other terms were not the reshuffle is related to ’s planned begun a stock swap program among its disclosed. Camtech founder Joseph launch of server CPU platform Purley in subsidiaries in Hong Kong and China. Nickerson joins ASC as a vice president. 2017, the sources said. The company seeks to reduce the Nickerson founded Camtech in 2000 as Microsoft has unveiled server models holding value of Hong Kong-based a provider of engineering and EMS supply developed through cooperation with the subsidiary Robot Holding to just 0.63 chain services. ASC and Camtech have Open Compute Project under Project percent from its current 75 percent been partners for years, the companies Olympus, Microsoft’s next-generation share, while affiliate companies in China said, and both parties said the deal will hyperscale cloud computing hardware will receive Robot Holding’s shares expand their respective reach. design and a new model for open source through a stock exchange process. hardware development, the sources noted. Last year, China’s Guangdong and Foxconn May Set Up 6G Project Olympus’s hardware partners are Zhejiang provinces announced they Hewlett Packard Enterprise (HPE) and would spend a combined $270 billion Panel Line in US, Say Taiwan-based ODM ’s wholly over the next five years to equip Taiwanese Makers owned subsidiary Wiwynn, the sources factories with industrial robots. Support Foxconn Electronics is talking with the indicated. In addition, HPE’s server OEM will arrive in the form of subsidies for US federal government and state is Taiwan-based Foxconn Electronics. factories that want to add more robots, governments about investing in the US Facebook originally procured servers along with the national government’s and is likely to set up a 6G TFT-LCD plan to triple industrial robot production panel factory there to produce small to 100,000 by 2020.

Manufacturing Market Insider, May 2017 7 to medium-sized displays for IoT ADAS (advanced driver assistance SIIX to Open Sales Branch (Internet of Things) applications, system) and autonomous driving in Vietnam including automotive, medical care, technology, and a 6G line can produce SIIX, a top 20 EMS company, this and mobile terminal displays, automotive display panels, the sources summer will establish a wholly owned according to Taiwan-based supply noted. sales subsidiary in Vietnam. chain players. There are three technologies Foxconn SIIX Vietnam Co. will perform import, Foxconn reportedly originally could choose from for the 6G line: a-Si, export, and sales of circuit board planned to set up an 8.5G or 10.5G LTPS, and IGZO. Innolux, of which assemblies and electronic equipment. line to produce LCD-TV panels or Foxconn is a main shareholder, has large SIIX is putting ¥11 million ($100,000) an LCD-TV module factory or a-Si production capacity, while Foxconn into the new office, which will start LCD-TV assembly lines in the US to has invested in setting up a 6G LTPS operation in August. market Sharp TVs there, the TFT-LCD factory in southern Taiwan and sources said. But this is very commissioned Innolux to operate it. Sharp unlikely, because Sharp had licensed specializes in IGZO TFT-LCD, the Publisher: Randall Sherman its TV brand sales right in the US sources indicated, as reported by market to China-based vendor DigiTimes. Editor: Anna Reynolds Hisense before Foxconn acquired a Research Analyst: Vivek Sharma majority stake in the Japanese Management Additions at vendor. Hisense does not plan to sell Board of Advisors: Michael Thompson, back the licensing to Sharp, Enics CEO, I. Technical Services; Ron Keith, CEO, Riverwood Solutions; Andy Leung, although Foxconn has negotiated As of May 1, 2017, EMS provider CEO, VTech Holdings, Ltd. with Hisense, the sources explained. Enics has added new members to its Sharp is actually unable to sell its management team. Kristian Federley, Manufacturing Market Insider is a monthly own-brand LCD-TVs in the US who worked at Enics previously, newsletter published by New Venture market until the licensing expires at was appointed VP, Engineering and Research Corp., 337 Clay St., Suite 101, Nevada City, CA 95959. Phone (530) 265- the end of 2020 and therefore Technology. “Enics is targeting growth in 2004, Fax (530) 265-1998. Copyright 2017 Foxconn has no motivation to by NVR™. ISSN 1072-8651 produce LCD-TV panels in the US comprehensive life cycle services in in the meantime, the sources electronics by utilizing the latest The information and analysis presented indicated. technologies like robotics and different here are based on sources believed to be reliable, but content accuracy is not As Foxconn is the largest EMS for softwares. These appointments are guaranteed. The publisher shall not be held Apple, a 6G line in the US can strengthening Enics’ focus to grow in targeted areas with capable, competent liable for any business decisions influenced produce panels for the iPhone, iPad, by this publication. and MacBook, the sources said. In and agile people in place,” a press release addition, global demand for states. E-mail: [email protected] automotive displays is growing Additionally, Susanna Pyykkö was Website: www.newventureresearch.com rapidly, along with development of appointed VP, HR and Communications.

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