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Wall Street on EMS vs. ODM market share and market segments

Research from IDC, and Deutsche Bank Equity Research, paint a good picture of the electronics outsource manufacturing and design landscape and the end-market segment opportunities aggressively sought after by electronics manufacturing services (EMS) providers and original design manufacturing (ODM) companies across the globe.

An excerpt from these findings follows.

Deutsche Bank believes the combined EMS and ODM market can be divided into seven segments:

  1. Computers
  2. Consumer devices
  3. Servers and storage
  4. Networking
  5. Telecom
  6. Peripherals, and
  7. Emerging (which includes automotive, medical, and industrial electronics)

The largest of these seven end-market segments is computers, which accounted for just over a third of the $238B market in 2006. Next largest by size is consumer devices at 27% of the overall EMS and ODM market.

As seen in Figure 1, these two segments represented more than 60% of combined EMS and ODM revenue in 2006. While the computer segment accounts for a large portion of the total EMS and ODM market, a significant portion of the revenue comes from the ODM side, with ODMs earning roughly 64% of the market revenue in 2006. As a result, the computers segment accounts for a smaller portion of EMS revenue, with only 19% of EMS revenue in 2006.

 

Figure 1: Combined EMS and ODM share by market segment

Combined EMS and ODM share by market segment

 

As seen in Figure 2, consumer devices is the largest segment for the EMS market, with roughly a third of the $153B market coming from consumer devices in 2006.

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Computers rank as the second largest segment for EMS, followed by networking at 10% of revenue.

 

Figure 2: EMS revenue share by market segment

EMS revenue share by market segmen

 

The fastest growing segments are computers and consumer devices. Consumer devices has seen the fastest growth, with combined ODM and EMS revenue growing 40% and 33% in 2005 and 2006, respectively. The second fastest growing segment has been computers, with combined ODM and EMS revenue growing 21% and 18% in 2005 and 2006, respectively. Deutsche Bank believes this growth is being driven by the notebook market, however due to market saturation, this segment is expected to slow over the next five years.

 

Figure 3: Combined EMS and ODM revenue growth by market segment

Combined EMS and ODM revenue growth by market segment

 

As seen in Figure 3, emerging segments like automotive electronics, medical electronics, and industrial electronics are expected to see the fastest growth over the next five years, driven by further penetration of these relatively untapped markets, and growth from a small base.

Of the major segments, consumer devices is forecast to be the fastest growing segment, with revenue increasing at a CAGR of 11% over the next five years. Below, Deutsche Bank discusses each segment in detail and highlights the top EMS providers for each segment.

The revenue segmentation Deutsche Bank uses is based on IDC’s definition, as each EMS vendor defines these categories differently.

Many EMS and ODM vendors offer both electronics hardware manufacturing and electronics design services. For the purposes of simplicity in this report, Deutsche Bank defines EMS and ODM providers by their primary business.

Companies defined as EMS (electronics manufacturing services) providers include: Benchmark , Celestica, Elcoteq, Flextronics, Hon Hai, Jabil, Plexus, and Sanmina-SCI. Companies defined as ODM (original design manufacturers) include: ASUSTeK, BenQ, Compal, Inventec, Lite-On, Quanta, and Wistron (Figure 4).

 

Figure 4: Top 22 EMS and ODM companies
Top 22 EMS and ODM companies

 

Consumer devices

Consumer devices is a varied category, which encompasses a number of different products including mobile phones, set-top boxes, flat-panel TVs, videogame systems, portable music players, digital cameras, and handheld devices. This segment is the second largest category for the combined EMS and ODM markets accounting for 27% of revenue, and is the largest category for the EMS market representing 32% of revenue. As seen in Figure 5, EMS accounts for 75% of this segment, with ODM vendors accounting for 25%.

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Figure 5: EMS and ODM market share for consumer devices
EMS and ODM market share for consumer devices

In 2006, revenue grew 33% and consumer electronics devices is expected to be the fastest growing of the major product segments, it is forecast to grow at a CAGR of 11% over the next five years.

 

Figure 6: Top 5 EMS providers for consumer devices

Top 5 EMS providers for consumer devices

 

The top EMS vendor in the consumer electronics devices segment is Foxconn International Holdings (FIH), the mobile phone subsidiary of Hon Hai, with 22% share. The second largest EMS vendor was Foxconn, with 19% share, helped by its relationship with Apple for iPods. As seen in Figure 6, above, Hon Hai (which operates under the brand name Foxconn and owns a majority stake in FIH), accounted for 41% of revenue in this segment.

Flextronics was the number three EMS vendor in the consumer devices category, with 17% share. Flextronics has strong relationships with Sony-Ericsson and Motorola for mobile phones, and makes digital still cameras for Kodak. Flextronics also builds set-top boxes for Thomson, Scientific Atlantic, and Motorola.

Elcoteq was the fourth largest EMS vendor with 9% share. The company primarily focuses on mobile phones, with strong relationships in the European market. For this report, Jabil came in at number five with 8% share.

Computers

The computer segment includes desktop and mobile PCs. Computer is the largest segment for the ODM market and accounted for 60% of ODM revenue in 2006. As a result, this segment is largely dominated by ODM vendors, which account of 64% of the market (Figure 7).

The computers segment is the second largest segment for the EMS market, accounting for 19% of total EMS revenue. In 2006, computer revenue grew 18%, primarily driven by growth of mobile computers, and this segment is forecast to grow at a five-year CAGR of 7%.

 

Figure 7: EMS and ODM market share for computer segment

EMS and ODM market share for computer segment

 

The top EMS vendor in the computer segment is Foxconn with 55% share (Figure 8). Foxconn has benefited from its customer relationships with Apple and HP, who have grown share in the PC market over the past year.

 

Figure 8: Top 5 EMS providers for computer market segment

Top 5 EMS providers for computer market segment

 

Sanmina-SCI was the next largest EMS provider with 11% share, helped by its relationships with IBM, HP and Lenovo.

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Flextronics is the third largest EMS vendor in the computer segment with 6% share. At its November 2007 Analyst Day, Flextronics announced plans to more aggressively target the computer market, as it believes this market will continue to benefit from the growth of notebook PCs.

 

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