Here are some facts (I hope) that I am working with for an article on electronic equipment manufacturing and the Electronic Manufacturing
Service companies that do most of it.
It will appear soon in iConnect007.com epubs. Comments and questions are welcomed.
I'll be glad to credit any--or not-- as you wish.
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THE FACTS
The largest EMS company in the world with over 1/3d of segment sales is Foxconn, also
known as Hon Hai. Sales are $110B/year, before recent divestiture of printed circuit fab activity, about$2.5B.
For every iPhone they get $1.50 for assembly-- compare that to the iPhone price, compare that to what Apple gets!!
Apple furnishes components and capital
equipment; Foxconn furnishes labor, plant,
manufacturing organization--- all for that $1.50. (And Apple is pounding on them to reduce it!! No wonder Foxconn is under pressure that is transmitted to their Chinese
workers.
How would you like to be one of them???)
Foxconn has about 20,000 (!) production lines, so revenue per line is about $5M. That is
about half of the industry average annual revenue per line. (Averages cited are gross estimates, useful for economic metric purposes, there are large variations dependent on manufacturing mix, production scale, etc.)
EMS companies typically net less than 5% of sales, usually much less. They make over 10%, often much more, on assets.
So they follow the Costco business model, supplying the components and turning them over fast--- except for the Foxconn-Apple relationship, as described.
(You see why Steve said, "Those jobs will never come back!")
THE HISTORY
The EMS business segment emerged in the 1980s as a result of developments that occurred on three fronts: (a)business, (b)economic, and (c)manufacturing technology . The three were closely interrelated.
(a) On the business front, in the late 1980s the original
electronic equipment manufacturers (OEMs) like Apple, IBM, HP, etc. decided, with
rare exceptions, that PCB fabrication and assembly were not their bag. Apple closed their Fremont CA plant (I went on a tour headed by Steve Jobs in the early 80's. Steve was so proud of that plant!)
Why did the OEMs decide to outsource manufacturing? One has to consider the economics and the manufacturing technology changes to understand their historic decision.
(b) On the economic front, economies of scale favor manufacturing specialization as business model. Electronics equipment markets are dynamically changing under the influence of macroeconomic business cycles and their own short life cycles.
OEMs loved to shift the resulting risks to EMS companies. Inventory risks and supply chain logistics were shifted along with manufacturing. OEMs could concentrate on product development and marketing, the valuable differentiators in their fiercely competitive markets. EMS companies were able to leverage buying power
for the
component/ materiel needs of many companies and products to become distributors, in essence.
(c) Another shift occurred in the 1980's that contributed to the business and economic reasons for transfer of manufacturing from OEMs to EMS companies-- the manufacturing technology shift from one-sided through hole to two-sided Surface Mount Technology.
That required large investments in new equipment, new supply chains, new skills.
Oh, but the OEMs enjoyed unloading all that and the EMS companies were equally overjoyed to taking it on!! But what a business!!-- more on that in my articles.
My article will include a couple sequels--technology and business, looking at the future.
It will include a special look at EMS competition as it plays out in Silicon Valley and on the global stage.
http://www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html?_r=1&hp
http://www.nytimes.com/interactive/2012/01/20/business/the-iphone-economy.html
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