Worldwide Contract Manufacturing Review
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Vol. 25, No. 7 July 2015 Worldwide Contract Manufacturing Review Figure 1: The Worldwide CM Market ($B), 2009–2014 The worldwide contract manufacturing performance overall. Five (CM) industry stayed essentially flat in EMS companies lost 2014, reporting slightly less total revenue money in 2014 but only than in 2013. Over the last five years, the three ODM firms did so— CM market has grown at 10.1 percent and with mostly minor CAGR, which is a healthy rate by any losses. Jabil Circuit, standard. Figure 1 summarizes CM despite the significant market growth from 2009 to 2014 in downturn in revenue in terms of US revenue. 2014 (primarily from the The CM market was sustained by the loss of Blackberry as a strong demand for smart phones, which customer), still managed to resulted in an increase in assembly turn out a strong profit. revenue of $5.4 billion in 2014. Orders Plant closures and for tablets were strong and for notebooks openings were quite weak (yet positive), while demand for extensive in 2014 as desktop computers was negative. companies were either Regardless, the computer industry gained consolidating or Because of the change in business model $1.3 billion in assembly revenue in 2014. expanding. The specific whereby certain ODMs in 2014 were Nearly all of the high-mix/high- closures or openings are reclassified as EMS companies, we cannot complexity products (medical, industrial, discussed on a country-by- analyze the previous year’s forecast for 2014. transportation) experienced positive country basis later in this We can examine the combined EMS and ODM growth, although defense/military article, but overall there forecasts (or CM) and compare it to the current suffered a decline resulting from budget were 31 closures compared results. We had projected growth in CM constraints. The biggest loser was the with 49 new openings. The revenue of only 1.1 percent from 2013 to 2014, consumer electronics industry, which openings are clearly related but the market performed so poorly that even experienced a $7.4 billion decline, mainly to new business this low number was too high. The actual resulting from a downturn in demand for opportunities, while the market growth in CM revenue was –0.5 percent digital television assembly. closures are being driven from 2013 to 2014. For the fifth year in a row, the by economic decisions. industry was profitable at $8.9 billion, nearly matching last year’s record of $9.5 billion among public CM companies. Foxconn Some articles in this issue accounted for more than half of all Cover Story……………………………………………………………………………………..1 the money made by the EMS Worldwide Contract Manufacturing Review industry in 2014, although the Some Quarterly Results………………………...……...………………………………………..…3 ODMs showed better earning Company News…………………………………………………………………..…………………..…4 Worldwide Electronics labor cost Figure 2: The Worldwide Market for Electronics Assembly differentials are by Cost Element ($1.4T), 2014 Market Forecast becoming less Figure 2 summarizes the worldwide significant when assembly market for all electronics weighed against products for 2014 by cost element. The the total cost of greatest cost comes from labor and production (such overhead, followed closely by as transportation semiconductor components, and then more and logistical distantly by bare boards, connectors, and challenges). discrete electronics that are manufactured Offshore product by PCBA. The box assembly involves migration will systems integration, functional test, and still continue to final box assembly. All these elements in take place, but it electronics product assembly accounted will be at a more for approximately $1.4 trillion in total subdued pace. revenue. Figure 3 presents the worldwide Application electronics assembly forecast for 2014 to 2019 by market segment. The overall Market market demand for electronics products Share Figure 3: The Worldwide Market for Electronics Products by should remain stable throughout the Figure 5 Market Segment ($B), 2014 forecast period as a result of continuous compares the innovation throughout a variety of market worldwide CM segments. MMI expects overall market market by growth to be steady over the next five industry segment years, barring a possible downturn in the for 2014 and election year of 2016. 2019. Both EMS Communications and computer products firms and ODMs will continue to be the leading segments will experience driving the largest growth in the the strongest electronics industry. In 2019, the total growth from industry is expected to reach $1.9 trillion production in the in annual assembly value (COGS), as communications consumption and replacement of and computer electronics products continue, and new market segments. products fuel demand. Outsourcing has Specifically, become a critical element in keeping the EMS companies electronics industry expanding and driving will find very costs to the margin each year—a leading Figure 4: The Worldwide Market for Electronics Products by strong growth in Region, 2014 and 2019 factor in stimulating consumer demand. tablets, e- The trend to move price-sensitive readers, cellular manufacturing to low-cost regions will handsets, impact the industry for all suppliers in the monitors, video foreseeable future. console games, and set-top Regional Market Share boxes, while Figure 4 compares the worldwide CM ODMs are market by region for 2014 and 2019. The projected to shift in production to low-cost regions has experience very been largely accomplished, although the strong growth in migration will continue, albeit slowly. tablets, e- Today, we are seeing OEM customers readers, cellular insisting that their CM partners handsets, manufacture products near the regions monitors, and This market overview of MMI’s analysis 2014 was extracted where the products are to be sold. For carrier-class from NVR’s recently published annual report, The Worldwide certain high-volume products like mobile equipment. In Electronics Manufacturing Services Market – 2015 Edition. phones and PCs, OEMs need to leverage general, EMS More complete information can be seen at the lowest cost in manufacturing; firms will tend to http://www.newventureresearch.com. however, 2 Manufacturing Market Insider, July 2015 excel in technology-intensive product Figure 5: The Worldwide CM Market by Industry Segment, 2014 and 2019 areas and complex board assemblies. ODMs excel in manufacturing commodity/high-volume products such as motherboards, monitors, handhelds, and consumer electronics. CM Market Share Table 1 ranks the top ten overall CM companies by revenue for 2014. Foxconn continued its extraordinary dominance as the leading EMS firm in the industry, outdistancing its closest contender by more than four times. Flextronics was displaced from the number-two position by Pegatron, dropping into third place. The remaining leaders are comprised of four ODMs and three EMS firms. Some Quarterly Results Table 1: Top Ten CM Companies’ Market Share, 2014 Celestica (CLS) reported Q2 revenue of $1.42 billion and EPS of $0.23. We do not anticipate much change in Celestica’s current revenue trend as weakness in carrier spending continues Company Rev. ($M) Market Share to negatively impact the communications space. The non- Foxconn (Hon Hai) 139,032 31.9% recurring asset relocation in the solar business is expected to negatively Pegatron 30,506 7.0% impact diversified segment revenue in the quarter. The company expects the impact on EPS to be somewhat offset by Flextronics 24,980 5.7% the completion of the significant issuer bid (SIB) in the quarter, but EPS is still Wistron 19,550 4.5% expected to decline $0.02 y-o-y to $0.23. Celestica is expected to end the Jabil Circuit 15,969 3.7% quarter with $182 million in net cash, down $387 million, largely due to the SIB. Quanta Computer 15,286 3.5% Regarding business segments, the communications segment is expecting Compal Electronics 13,956 3.2% Q2 to show sequential improvements on new product launches and an improving Inventec 7,188 1.6% spending environment. Cisco’s latest generation switching platform continues to show solid momentum and the TPV Technology 6,238 1.4% company continues to see growth in its routing platform, especially at the high Sanmina-SCI 5,870 1.3% end. Cisco continues to expect weakness in service provider spending, but the Others 157,935 36.2% company believes it will offset this weakness by gaining market share. In storage, y-o-y growth is expected to World Total 436,510 100% continue due to the stable demand environment and joint design manufacturing (JDM). Manufacturing Market Insider, July 2015 3 EMC has been delivering 3% constant company’s top 10 customers were lower tax rate. currency revenue growth y-o-y from its below forecasts and several customers Flextronics continues to do a good job storage business despite a tough experienced weakness late in the on margins and cost management, but environment. In the server segment, quarter. Networking visibility remains both INS and CTG performed after very strong Q1 growth, expect the limited and weakness is expected to significantly below expectations this momentum to slow in Q2 as demand continue into Q4 with the segment quarter, which is concerning as these growth normalizes for IBM’s latest expected to be down in the high teens segments, combined, drive the majority mainframe line. Similarly, Oracle’s q-o-q. In addition, a production process of its revenue (> 60%). INS saw high-end hardware business continues to constraint in one of Plexus’s Aerospace softness in wireless, networking, perform well and helped drive 3% factories hurt sales and had a 20-basis- servers, and storage, while CTG again constant currency growth y-o-y. point negative impact on operating saw lower-than-expected smart phone The diversified segment was impacted margins, although this issue is being demand (Lenovo/Motorola Mobility). by the energy business; semiconductor resolved. In INS, management is confident about capital equipment (semi-cap) is Plexus’s fiscal third-quarter cash future growth in the segment, expecting expected to continue growing.