Tag Archives: EMS

Whither Kaifa?

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Should Shenzhen Kaifa Technology be included in EMS Top 50 lists?

It’s not an easy question to answer. On revenue alone, perhaps: Kaifa, as the company is known, had sales of about $4.4 billion last year. Using that gross number would place it squarely between Sanmina-SCI and Cal-Comp in the Top 10.

But there’s more to it than that. Kaifa generates an extraordinary amount of its revenue from making and selling hard disk drives to Seagate. In fact, under most classifications, Kaifa would rank as an ODM, and not just of printed circuit board assemblies.

Then there’s the confusion of what, exactly, is Kaifa.

The company, which is supposedly traded under the ticker symbol 000021 on the Shenzhen Exchange, has no current listing. However, it is also apparently a subsidiary of China Electronics Corp.

CEC is giant: the conglomerate says its annual revenues topped $8 billion back in 2006 and it employs more than 70,000 workers across some 61 subsidiaries, including 13 listed holding companies. Among them are cellphone and datacom OEM Panda Electronics,  computer and TV manufacturer Greatwall Technology, and yes, Kaifa.

It also is state-owned, and operates directly under the administration of China’s central government.

Forget, for the moment, how strange it is for what is essentially government entity to be publicly traded. Consider instead whether a government business can be considered a contract manufacturer, especially in China, where the Communist Party still holds sway over most economic policy and can pick the winners and losers at the drop of a hat.  Want to get a government contract? Use a government provider. It becomes hard to distinguish between what is competitive bidding and what is political.

Then there’s the matter of CEC’s financials. They are dense, to be sure. It’s hard to tell what revenue comes from external customers and what is just “padding” from its own pyramid. Among those that can be discerned, Great Wall alone made up $1.6 billion in revenue last year. Read the fine print and you’ll see the company has several “deals” in place to buy components and services from other CEC subsidiaries.

So should Kaifa be listed on the Top 50 EMS charts? Because it is next to impossible to know what its true revenue from EMS related activities is, I say no, while respecting the decision of others to disagree.

LaSurprise

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I’m one of those who didn’t see the possible acquisition of LaBarge by a non-EMS firm.

In fact, I thought either LaBarge would continue to buy other, smaller EMS firms (I’ve heard of its interest in some deals that were never consummated), or it would be gobbled up by a Sanmina-SCI or the like.

But today defense supplier Ducommun announced it would acquire the electronics manufacturing services firm for $340 million, or just one times revenue plus debt. The move is expected to almost double Ducommun’s annual revenue and boost its margins.

Don’t expect those synergies to happen overnight, if ever. EMS is a different sell than the components like panels and switches Ducommun has made a living off of for more than 150 years.

Here’s a question: Does this, coupled with API Technologies’ recent acquisition of SenDec, signal a larger trend of consolidation on the competitive but relatively margin-friendly military EMS industry?

Another question: What becomes of Craig LaBarge, who has run the eponymously named firm since 1991, taking over for his father, who founded the company in 1953. Will he sit still on the sidelines, or will he take another shot at empire building?

28 and Counting…

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Key Tronic, our EMS Company of the Year for 2009, keeps making our choice look good.

It reported yet another quarterly profit today, bringing the streak to 28 straight quarters. That’s seven years in a row without a losing quarter, the longest streak among publicy traded EMS companies we can think of.

Congratulations — we know it wasn’t easy.

Hot Seat

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I’ll be blogging from SMTAI in Orlando next week, where I’m chairing/co-chairing a couple of sessions on contract manufacturing.

On Tues. Oct. 26, from 2:00pm – 3:30pm is Outsourcing Strategies: Niche Requirements and EMS Best Practices, featuring

  • ODM or EMS: Which Choice is Best for Your Project?
    Jim Chen, Tailyn Communication Company, Ltd.
  • How Efficient Is Your High Mix EMS Supplier
    Dave Cesar, The Parkland Group and Roy Starks, Libra Industries
  • Outsourcing LED PCB Manufacture
    Scott Mauldin, LEDnovation, Inc.

    Then from 4 – 5:50pm is EMS Segment Focus: Aerospace/Defense:

  • Understanding Differences Between Defense OEM/CEM and Traditional CEM Business Models
    Allan B. Day, TEAM Technologies, Inc.
  • ITAR Compliance – Challenges and Benefits in an Outsourced Relationship
    Joe O’Neill, Hunter Technology Corporation
  • Practical Issues and Solutions for Handling Plastic Encapsulated Microcircuits (PEMs)
    Rick Iodice, Raytheon Integrated Defense Systems

    • Foxconn, China Tied For Good (or Bad)

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    The pundits are out and speculating that, in the wake of a dozen worker suicides, higher wages and reams of bad press, Foxconn might relocate from China.

    AppleInsider thinks Foxconn might move production back to Taiwan. John Dvorak suggests a fed-up Terry Gou might either replace workers with robots or leave altogether. Others pose similar notions.

    Two fundamental problems exist with this line of reasoning (three, if you factor in that a scaled-up lights-out electronics manufacturing operation has never existed).

    1. No other country, save for India, offers the population China does. Foxconn’s model is built on having access to hundreds of thousands of workers in company towns. Where else in the world is that possible? What other government would even allow it? Taiwan, for example, has neither the space, the population nor the wage rates necessary to pull this off, even if it wanted to.
    2. Foxconn has established complete supply chains in or near its campuses. It’s one thing to move a factory. EMS companies do this all the time, and (with some notable exceptions) have actually become fairly good at it. But relocating an entire supply chain takes time and commitments. Foxconn may be the largest EMS player in China, but it’s not the only one, and in just a handful of cities those chains can feed the 75% or so of all electronics manufacturing in the world. Simply put, there are good reasons everyone is in China right now and not, for example, India.

    For better or worse, Foxconn and China are bound together.

    Add Ons

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    Now that the worst of the financial meltdown is (hopefully) behind us, one of the trends to watch will be how quickly EMS companies expand capacity.

    Plexus, which has always been conservative in its approach, said this week it would first consider adding to its Penang, Malaysia, base, which is currently its largest campus, as well as alternatives in China and possibly Thailand. It said its next investment in Europe would likely be in Oradea, Romania, where the company already has two sites and feels “a more permanent location in very close proximity” would be in order.

    Celestica, on the other hand, said it is looking to acquire fairly modest-sized health-care businesses, but hasn’t indicated plans to add capacity.

    Flextronics and Jabil appear more set on building up manufacturing capabilities for alternative energy products. Foxconn, of course, looks like it might invest just about anywhere.

    Comparing Top 50 Lists

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    John Tuck has issued his annual list of the top 50 EMS companies.

    Years (and years) ago, Tuck, for those who are newer to the industry, was editor of Circuits Manufacturing, the predecessor to CIRCUITS ASSEMBLY, and was one the gold standard for technical editing.

    I’ve taken a look at his list, and, like last year, found a few discrepancies. For instance, it would appear John is using aggregate company revenue, instead of parsing the financial reports to separate now-EMS sales.

    Compared with the CIRCUITS ASSEMBLY Top 50, the top 10 are identical, save for no. 7 and 8. John flip-flops Venture and Elcoteq, which could be due to variations in currency conversion (Venture is Singaporean, Elcoteq is nominally based in Luxembourg).

    Like last year, John inflates the position of Universal Scientific, ranking it tenth even though a majority of the firm’s sales come from OEM products, not EMS. Once those non-EMS revenues are subtracted, CIRCUITS ASSEMBLY dropped USI to 18th.

    Kudos, however, for finding Japan’s Sumitronics, the offshoot of materials conglomerate Sumitomo. Same goes for Topscom of Hong Kong, which had 2009 sales of $300 million. I’ve never heard of SRI Radio Systems of Durach, Germany. Back to the Internet for me.)

    That said, John misses on some biggies. Absent from his list is Team Precision, which had EMS sales of $446 million last year. Ditto Computime (2009 sales: $288 million) and Victron ($250 million).

    And Hitachi Computer Products, which ceased EMS operations last month, should have easily made the list.

    Military electronics manufacturer DRS Technologies is a consistent placer on the MMI Top 50, although I’ll be cussed if I can figure out whether they actually do EMS work in the traditional sense, or are more like an OEM with a very particular niche.

    One oddity: Despite estimated sales of $445 million, France’s Eolane is no. 48. I reckon that’s because John misread the company’s first-half financial statement, mistaking it for a final-year report. (Just a guess.)

    Also, Wong’s Electronics and WKK Technology are broken out on the MMI list, although they actually are the same company.

    Despite the occasional variation, I love reading John’s work, and always look forward to his list.

    A Cure for Sparton?

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    Not sure I how missed this earlier, but Sparton now breaks out its EMS revenue from its ODM work.

    That, coupled with the company’s restructuring into three business units (the third is medical), makes the cynic in me think they are positioning the EMS unit for sale. The website now touts the medical and defense businesses (read: sonobuoys) as on equal footing with EMS work. The company has lost Honeywell, which was once one of its largest customers, and closed the plant in Albuquerque that once was owned by that OEM.

    More relevant, in terms of sales, EMS is no longer the firm’s largest business, having slipped one point behind medical in the most recent quarter. In terms of profitability, defense is the easy winner, followed by medical, while EMS remains in the red.

    Disclosure: This is just idle speculation. I’m not floating any ideas and have no specific knowledge of Sparton’s plans. It’s just what it looks like to me.

    6,500 EMS Companies? That’s Inflation!

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    How many EMS companies are there in the US?

    Key Tronic president and chief executive Craig Gates says he read “there are something like 6,500 different EMS companies.”

    I’m not sure where he read that, but it certainly wasn’t in CIRCUITS ASSEMBLY. Best we can tell — and we have a directory that lists every company we know of — there are something less than 1,300 in North America.

    Now, I’m willing to acknowledge we might be missing a few sites. But we’re certainly not off by 5,200. Perhaps the count Gates saw included all assembly operations — including those of OEMs. Even so, that’s some fuzzy math.

    Tea Party Time?

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    Jeff Cosman, president of EMS provider QCircuits, has an interesting take on the proposed corporate tax changes winding their way through Washington and their potential effects on the EMS industry. In one instances, he compares the economic plans of the US and Germany, and concludes, “The ultimate result may be a reduction in vertical integration in the electronics business. This is good for overseas CMs and possibly some in the US as the horizon for economical offshore operations comes in a bit. It’s not as good for OEMs because they won’t be able to take advantage of their own offshore investments as much as before.”

    Agree? Disagree? Let’s hear it.