This week I had the pleasure of spending an hour with the CEO of a long-time supplier to the electronics manufacturing industry. Though it was our first meeting, we quickly got immersed in a conversation about the 5 or 6 largest electronics manufacturing services companies as if they were friends we each knew since high school. “Jabil and Flextronics made a go at becoming ODMs,” he said,” but it didn’t suit their strengths.” I heard myself say, “Celestica has always known who they are.”
What is it about EMS companies that has inspired investors to clamor over them despite the industry’s consistent, remarkably low profit margins? How did the “board-stuffing” suppliers – once only whispered about by the name-brand companies that outsourced to them — transform themselves into multibillion dollar international players with star-power executives such as Michael Marks and Tim Main?
From the perspective of having tracked and served the industry since 1985 (2 years before starting Technology Forecasters Inc.) when “board-stuffers” was actually an accurate and not pejorative moniker, I believe that it’s the personalities of the companies themselves that have won them fame (if not also fortune).
It was the people who loved building things who ran these companies originally – before visionaries and financial experts arrived on the scene. They had an earnest desire to build products better than the name-brand (former) product builders. They had the thrill of crossing the Atlantic then Pacific Oceans to open up facilities in Scotland and Ireland, then Singapore and Malaysia, then China and Eastern Europe, then Vietnam and Jordan (I’m projecting, now). Empire builders they were, and we all rooted for them, discussed them like favorite sports teams, and felt badly when they suffered.
So that’s why when we reflect today about these EMS giants and the challenges they face, it’s as if we are speaking about friends whom we wish well — even though mistakes were made (such as Solectron buying C-MAC), bubbles were burst (“I can be a product company if I want to be”), and profitability disappointed all (countless EMS executives dream to work for healthy-margin OEM companies).
Why do you think that the EMS industry has acquired such a high profile? It is sheer size, or something more? (Please leave a reply below.)
Post Note: I dedicate this blog entry to the memory of a real friend from the EMS industry, Scott L. Hudson, who this month while riding his motorcycle was killed by a drunk driver. Scott worked for EMS-company Sanmina-SCI and before then was a TFI Analyst. I will miss Scott as team member, client, and friend (remembering especially his love for sailing, international travel, and modern art). A memorial service will be held in Los Gatos, California, Sunday August 2nd from 4 to 7pm at the Los Gatos History Club.
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We used to refer to the business as the “Three S’s”, stuff, solder, ship, but “board stuffers” works, too. I worked for Solectron for five years during the heyday and now work for Asteel Flash. Those were great times at Solectron with our stock price increasing almost daily. Solectron was at one time one of the fastest growing stocks in the market. But there is no glamour in this business as you describe. Investors don’t seem to enamored with the industry either. Year 2000 till now has been dismal from a stock appreciation point of view. And while other tech companies are doing well, the ECMs are laggards. You may have fond memories of working with some of the people and that makes the industry seem better to you. Solectron buying C-Mac was one of many, many mistakes made. And I was a manager there. But poor management certainly yields poor results. Fortunately, I left well before the decline beginning in 1999. What a disaster, but I saw it coming and sold all my stock in time. Sorry to hear about the tragic accident of your friend. At least he died doing what he liked, riding a motorcycle. Unfortunately, his life was taken away from him, which I find particularly tragic. But at least he didn’t die from cancer because of inhaling flux fumes working at an ECM.
I remember fondly the days of working at Jabil in Michigan, those were some great times from 94-96 left in the middle of 1996 for a much smaller CM, actually was a great move a we are growing and Jabil has pretty much left Michigan.
The real founder of the EMS industry was Joe MacKenzie who started the original Flextronics back in the early 80’s over by the FAA center in Fremont. His organization was quite profitable, had a shop floor data management system well before the advent of more sophisticated systems and he knew his costs to the penny. Granted the draconian locking turnstiles for employees where their times were tracked to the minute gave rise to the urban legend of the American Sweatshop. The secrecy of his EMS facility addad a mistique to the early hush-hush products about to be launched in Silicon Valley. No one got into his production facility that wasn’t absolutely necessary – no guided tours, etc. What happened inside the early days of Flextronics stayed there and it was one of the reasons that his company always had plenty of work.
Major OEMs are mostly located in pretty expensive labor countries, they first started with outsourcing manufacturing to EMS, and recently to ODMs to reduce their product costs. Both EMS and ODM providers are expanding their capabilities to cause a convergence in the industry. Acer founder Stan Shih was recently quoted in DigiTimes that both EMS and ODM will become DMS, Design Manufacturing Services providers.