Tag Archives: EMS

EMS Q3: Cloudy, with a Chance of Pitfalls

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Checking our pool of 30 or so publicly traded EMS companies that have thus far reported third-quarter earnings, we see an industry that is decidedly mixed.

Exactly half of those in our pool reported net income rose over last year. And 16 said sales are higher.

Of the Tier 1s, Foxconn and Jabil said sales were up, and Foxconn and Flextronics saw higher profits. Celestica and Sanmina-SCI saw revenues fall while Plexus’ and Benchmark’s rose. However, all but Sanmina took profit hits.

Confused yet?

The mid tier EMS groups were no easier to divine. On the larger side, Nam Tai and IMI had great quarters all around, Kimball saw operating profits and sales climb, and Venture’s sales ticked up too (it hasn’t reported profits yet), but Fabrinet (whose recovery continues) saw both figures slip. Key Tronic was up, CTS was down. Scanfil was up, Note was down. Neways was up, PartnerTech was down.

You get the idea.

The good news is, most companies, especially the larger ones, saw higher revenues in the third quarter than they did in the first. This could be another sign that the traditional seasonality has returned, which would be welcome at least because it makes things a little more predictable.

In listening to the various analyst calls and poring over the quarterly reports, it seems many companies reaped the benefit of existing programs in the September period, while those who didn’t were plagued mostly by new product starts, which are a drag on earnings. The former could hide some deeper some concerns, because all programs eventually come to an end, and if overall launches are on the decline, it could spell trouble down the road. This could be why several EMS companies, which collectively tend to be a bit gunshy bunch anyway, warned that the December quarter might be slower than the last.

Check out Board Talk, our new bulletin board: theprintedcircuitboard.com


The EMS-to-OEM Transition

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We list more than 2,400 sites on our Directory of Electronics Manufacturing Services Companies. Of  them, I would hazard to say at least 15 to 20% now offer some form of ODM/OEM work.

It’s not always who you’d think, either. While the obvious companies are there — Foxconn, Pegatron, Wistron, Flextronics, etc. — more and more smaller firms are joining the fun. Everyone from Hunter Technology, which builds discrete RF/microwave components in California, to Mikroelektronika, which makes fare boxes in the Czech Republic, are involved in some sort of original design manufacture or outright OEM work.

At some point I’ll sit down and count out the exact number. Suffice it to say, it will be significant. EMS firms never sit still.

India Goes Dark

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Some 300 million Indians are without power today as no fewer than six states there lost power for an extended period of time. Add this to the growing list of recent potential and real supply-chain disruptions. There are at least 80 EMS companies affected by the outages, based on the number of entries in the CIRCUITS ASSEMBLY Directory of EMS Companies.

While the extended length of this weekend’s outage was an exception, according to Reuters, “blackouts lasting up to eight hours a day are frequent in much of the country.”

This is not to say that companies shouldn’t manufacture in India. However, the national power concerns should be a consideration for those who choose to put all their eggs in one (offshore) basket. Spread the risk.

 

 

 

No Rest for EMS

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Look out Apple — Foxconn is encroaching on your turf.

The company, which already boasts a chain of retail outlets, plans to expand into everything from software apps to a broadband satellite network. Much like Verizon, Comcast and others in the US, the EMS firm is working with local municipalities to build out the network.

Moreover, it has big plans to develop apps for smartphones, tablets and TV.

EMS companies don’t stand still. They can’t make money making solder joints. OEMs that want to protect their future should reconsider the extent to which they should be enabling  their suppliers.

Supply Chain Shakeup is Here at Last

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We’ve often wondered whether the roughly 25 years of serious electronics outsourcing has been deleterious for OEMs. Certainly OEMs that have come to rely heavily on contract manufacturers now lack much of the know-how that comes with in-house product build. That’s a subtle change, and one that’s hard to measure directly.

But I’m getting at something more concrete. Indeed, is it possible the broad-based philosophy to “outsource everything” has not only led to a loss of manufacturing development but also actually cost more than had OEMs maintained their internal production capabilities?

Some OEMs are finding out. The ODM model, not so long ago the envy of the contract manufacturing world because of its higher margins, is being torn apart. Customers are pushing for additional services and in the process driving up internal ODM costs.

The flooding in Thailand, the earthquake and subsequent tsunami in Japan, the unrest in the Tunisia – all these unpredictable events are forcing OEMs to look ever more closely at their ever-more-fragile supply chains. The decimation of the disk drive market in Thailand last fall really woke everyone up.

Now, industry leading mid-market OEMs have already begun restructuring their supply chains, disengaging and reworking their manufacturing agreements with ODMs, and reconsidering regionalization builds (aka reshoring). This is a multi-step process that will take several years, says Charlie Barnhart, but it also is “a very definitive trend.”

Barnhart made his comments the Outsourcing Navigator Council meeting May 30 at Teradyne in suburban Boston. (I was fortunate to be invited to moderate a panel on EMS after-market service trends; more on that later.) Barnhart is a bit of an industry gadfly, but he’s provocative and willing to buck the conventional wisdom when his data (and his gut) tell him so. If he’s right, expect upheaval, and expect it soon.

We can’t say we haven’t been expecting this.

Malaysia v. China

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Don’t laugh: When it comes to manufacturing competitiveness, the divide between the two nations is not so wide.

Flextronics, Celestica, Plexus, Beyonics and other major EMS companies are heavily invested in Malaysia. Plexus’ largest factories are there, and the company has expanded of late. Flextronics has 11 factories alone in the country. Four of Beyonics’ six plants are there.

As Flextronics’ VP of supply chain Mark Shandley explains in this article today, customers like Malaysia for its lower and less complicated tax structure, the superior IP protection, and competitive labor rates (although Malaysia, like China, is experiencing large hikes). Sharp differences in attrition are noted as well.

 

 

 

Rating World-Class Productivity

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Folks,

The impetus for writing the Patty and the Professor series came from my observations that many assemblers were not very focused on productivity. Productivity seemed to be an afterthought. Since then little has changed. This conclusion seems astounding, since all assemblers are in business to make a profit.

In light of this situation, I have developed 10 questions, valued at 10 points each, to help assemblers assess their profitability potential. If you work for a printed circuit board assembler, take this quiz and see how you rate:

  1. Although quality may be job 1, our company has a strong focus on productivity. At all levels everyone understands that, when the line is down, we are not making money.
  2. We have a practice, understood by all, that if a line is down more than a specified amount of amount time, the line down situation is escalated through the management chain.
  3. All of our operators, technicians, and engineers have been trained in procedures to assure the minimum amount of downtime.
  4. We measure and graph our line uptime and other productivity metrics.  Everyone knows the approximate value of these metrics.
  5. Our component placement machines are time balanced.
  6. We use feeder racks and other preparation devices to prepare for the next job while the current job(s) are running.
  7. A major consideration in the purchase of our assembly equipment is its effect on productivity, not the equipment’s cost alone.
  8. A major consideration in the purchase of our assembly materials, such as solder paste, is its effect on productivity (e.g. poor paste response to pause would be a strong rejection criteria,) not the material’s cost alone.
  9. We us productivity and cost metrics, such as non-material assembly per I/O assembled (NMAC/I/O), to track our performance.
  10. We understand that sometimes an added expense, such as solder preforms, can actually reduce the total cost and increase productivity and profitability.

Ratings:

  • World Class: ? 90
  • Above Average: 75 – 89
  • Average:  55 – 74
  • Below Average: < 55

How did you do?  Let me know what you think. We hope to have this online soon.

Best Wishes,

Dr. Ron

Chatting with Charlie

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Be sure to tune in to Charlie Barnhart’s chat on outsourcing models and trends later today at PCB Chat.

Charlie’s long been known for his scrupulous analysis and willingness to slay the sacred cows of contract manufacturing. He’s sure to offer some entertaining and informative answers to your questions.

The chat takes place today from 2 to 3 EST. To attend, click here.