For years we’ve been told that EMS companies are in the service business only and would never develop their own products. In one of the first interviews I did, back in late 1991, then IPC director Tony Hilvers — a leading proponent of the then-emerging CM industry (it wasn’t even called EMS then; that term was coined by Sue Mucha the following year) — insisted to me that contract assemblers wouldn’t go down the product development and branding path because it would put them in position of competing with their customers.
We can bury that old saw. With today’s news that Foxconn has, at long last, bought Sharp (for the low, low price of $3.4 billion), the loop between EMS and OEM has been drawn taut.
Not that this is ground-breaking in practice. Certainly, many, many EMS companies have, through acquisition or otherwise, developed and marketed their own products. Our 2009 EMS Company of the Year had a healthy, branded keyboard product line. And we estimated in this space in 2012 that 15 to 20% of the (then) 2,400 companies listed in our EMS directory did some degree of ODM/OEM work.
Going further, we wrote in 2015 we felt the line between EMS and ODM has been “permanently crossed.” But the Foxconn-Sharp marriage takes it to an entirely different scale.
Whether the Sharp name stays on its product lines, which range from Aquos televisions to smartphones to solar panels, and includes the OLED technology so prized by Apple that it compelled Foxconn to write the check in the first place, remains to be seen.
Either way, there’s no going back. EMS is now OEM. Going forward, who is the customer they will serve? And knowing the line keeping their suppliers from their end-customers has been permanently breached, will this spur OEMs to reestablish their assembly operations?
Have you had any official responses from the more classic EMS houses, e.g. Jabil and Celestica? In other words, are there some group of EMS’ that plan on maintaining the service only business model?
I don’t include Flextronics in my example EMS companies since they have not been averse to breaking into the OEM world in the past.
Hi John,
In some respects, Jabil blew past this barrier a few years ago through a pair of acquisitions. Green Point (acquired in 2006) produces plastics, rubberized castings, wood and metal processing, and custom tooling. Nypro (acquired in 2013) manufactures packaging for the medical, food and beverage, household and personal care markets. Jabil gets 2/3 of its revenue from these two units. So while they aren’t branded hardware offerings, Jabil is by no means still a standalone SMT design and assembly company.
I’m not entirely sure, and perhaps someone from Celestica can weigh in as to whether any of Celestica’s JDM products are essentially Celestica’s own creations that are then branded under customer names.
Mike
John,
I’ve heard from a friend at Celestica that they are typically jointly designed and manufactured (JDM) which means the design is targeted to 1 to 2 customers in particular. Celestica does the manufacturing. In the case for Enterprise and Communications sector customers, the designs are done by Celestica Shanghai and then branded either under the OEM logo or generically.