OEM/EMS Barrier Permanently Cut

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?

The EMS-to-OEM Transition

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.

Apple: OEM Again?

We tend to think of Apple the company as a design innovator and a great marketer. What we don’t think of Apple as is a manufacturer.

We should.

Per its 10-K, Apple ran up a tab of some $4.6 billion in capital expenditures in 2011, of which no less than $4 billion was for manufacturing and tooling. Keep in mind that this is a company that has no manufacturing facilities.

Apple went from a traditional OEM to a design/marketing company to one that owns everything from chip design to effectively owning the plants that build its products. It’s an OEM again.

So sure, Apple and Foxconn are tied at the hip. But the 10-K gives us a better glimpse as to why: Apple owns the lines. It’s one thing to move a program. It’s another to replace a factory, especially one with a hundred thousand workers.

Apple is the most valuable company in the world. It dominates its supply chain like no other. Sooner or later, the rest of the industry will copy its methods. The OEM as manufacturer will be back in vogue.

Chatting with Charlie

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.