Big five become the huge two!
05 June 2007
Two of the biggest names in the EMS sector are coming together to form a $30bn company, leaving the top table in the EMS sector dominated by two companies.
A consultant caused a few ripples (intentionally) nearly a decade ago by predicting that there would only be five electronic manufacturing companies left in the world. When I spoke to him afterwards expressing my doubts about his sanity, he explained that behind the headline-grabbing he genuinely believed that OEMs could not ultimate compete on price with EMS providers, and in turn the EMS providers would evolve along the lines of ‘economies of scale’ until the market was dominated by a handful of global giants. He admitted that there would be thousands of OEMs and EMS companies filling up the niche markets, but that there would be nothing between them and the exclusive club of the Tier 1s. The mid-volume, regional Tier 2s and 3s would either fade away or be swallowed up.
These predictions were made in the days when EMS companies were busy buying up their customers facilities in a desperate quest for more capacity, with Solectron, SCI and Celestica leading the chase. This was all fine until the crash when everyone realised that there was too much capacity.
What is different now is that the EMS companies are buying up their competitors, with nothing more spectacular than the Solectron acquisition yesterday. And would that sage of a decade ago really have envisaged only two such giants dominating the world stage? It now means that Flex , as a $30bn company, along with the acquisitive market leader Foxconn, effectively own about half of the $140bn EMS market. And the two of them are now playing in a different league to the rest of the pack. If another company is going to break free from that pack and join them they are going to face huge obstacles in terms of the manufacturing flexibility and purchasing power that the big two have.
Going off on a tangent slightly, a decade ago we still lived in a world when there was an ‘Axis of engineering’ (does that sound Presidential?) going through the US, Germany and Japan. Who would have thought a decade later that the two most successful contract manufacturing companies would come from Singapore and Taiwan?
Regards
Tim Fryer, Editor
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