Contract Manufacturing to Slowdown

iSuppli has said the global contract manufacturing industry growth is slowing down. According to them there has, over the past 5-years, been under-utilization of manufacturing capacity and the industry is set for a period of consolidation. Part of the reason according to iSuppli is a slowdown at Foxconn. iSuppli says:

Revenue for the global CM industry, consisting of Electronics Manufacturing Services (EMS) and Original Design Manufacturing (ODM) providers, is set to expand to $432.3 billion by 2012, rising at a Compound Annual Growth Rate (CAGR) of 7.2 percent from $305.5 billion in 2007. While a $126.7 billion gain in revenue during a five-year period may sound like fantastic growth, it actually represents a major slowdown compared to years past, on a percentage basis. Global CM revenue rose at a CAGR of 15.5 percent from 2002 to 2007. The industry CAGR amounted to 49 percent during the 1990s.

“Several factors are inhibiting the revenue surge of the past 20 years,” noted Adam Pick, principal analyst, EMS/ODM at iSuppli. “Those factors include the statistical law of large numbers, which makes it difficult for such a large market to expand much on a percentage basis. Other factors include a slowdown at leading EMS provider Foxconn, shifting EMS/ODM business models, new OEM procurement strategies and OEM/CM asset transfers.”

Right now in Taiwan and China there are many small contract manufacturers each vying for the piece of a very big pie. I think if contract manufacturers are careful about which markets they target they can still be successful. However, new entrants into the market will find it increasingly difficult to compete.

Adding to this news, Digitimes reported that ICP Electronics, a big Taiwanese EMS has also seen a decrease in demand and will therefore reduce their planned capacity expansion. According to Digitimes:

Taiwan-based IPC maker ICP Electronics has suffered a delay in expanding the production capacity of Armorlink SH, its manufacturing subsidiary in Shanghai, China, and has therefore downward adjusted the originally planned scale of expansion, according to the company.

ICP originally planned to establish eight new SMT lines in addition to three existing ones at the factory, with completion scheduled for the end of the first quarter of 2008, the company indicated. However, the expansion has lagged behind schedule, ICP noted.

To cope with the delay and in light of current orders, ICP has decided to install five SMT lines in August, with operation to begin in the fourth quarter of 2008, the company pointed out. The remaining three SMT lines originally planned may be added in 2009, depending on market conditions, ICP indicated.

iSuppli: Global Contract Manufacturing Transforms by 2013
Digitimes: ICP Electronics sees delay in China capacity expansion

Industrial PC Companies Continue to Shine

China Economic News (CENS) reported industrial PC (IPC) companies posted impressive sales in April. CENS says:

Taiwan's industrial computer makers, including IBASE Technology Inc., Winmate Communication Inc., ICP Electronics Inc. and ADLINK Technology Inc., all enjoyed shining sales records for April, according to company sources.

IBASE has benefited from an influx in orders for the card dealing machines from Casinos around the world. Winmate has managed to generate significant orders for their digital signage solutions and ICP Electronics has secured strong orders for lottery machines. Investors predict ICP Electronics will have April sales of around NT$359 million and that these sales will further increase when the new plants in Shanghai come on line in the next few months. Adlink has also had a revenue growth mostly due to a growth in orders in Taiwan and Europe.

Since I work in this industry, I really hope it continues to prosper.

Article: Taiwan`s Industrial Computer Makers Post Shinning Sales Records for April

Interview with Adlink GM P.J. Go

In an Embedded Computing interview Adlink's general manager P.J. Go describes the motivation behind Adlink's recent acquisition of U.S. based Ampro:

The main reason we wanted to buy Ampro is because the company plays very strongly in the U.S. Military, aerospace, and medical markets. We have had fairly limited success penetrating those markets here in the United States. In addition, Ampro gives us a great revenue base in the United States. Our U.S revenue will represent 35 percent of the company’s total revenue, instead of the 15 percent that it represented previously.

Ampro also adds to our toolkit expertise in extended temperature and the shock and vibe specs required by the military and aerospace market. Ampro is used to building boards that can go from -40 ºC to +85 ºC for operating temperatures. ADLINK had been doing -20 ºC to +70 ºC or usually, 0 to 50 ºC.

Of course, as noted earlier, this makes Adlink the third largest IPC provider in Taiwan behind Advantech and ICP Electronics.

This horizontal merger is classic product and market diversification through merger and acquisitions (M&A). Many companies do this so as to develop better positions in foreign markets, to secure more reliable distribution networks in new markets and to purchase new expertise and product lines. Clearly Adlink are hoping to learn how to develop more durable systems. One of the biggest challeneges for Adlink will be cross-cultural management. Despite this, this acquisition seems to be a big win for Adlink. However, as with most M&A, only time will tell.

Interview: A few minutes with ADLINK’s PJ Go and Jeff Munch

Can Adlink become Taiwan's Second Biggest IPC Maker

An article on Digitimes suggests Adlink wants to become the second largest Industrial PC (IPC) manufacturer in Taiwan. Since I work for an IPC company myself this article is interesting. The IPC industry is a very unique, niche industry and the current giants, Advantech and Kontron, continue to do well in innovation and ICP Electronics continues to grow with their IEI Technology Brand. Advantech have recently restructured their own organization and continue to lead the field.

From the article it does seem that Adlink are moving into systems as most IPC companies are now. Most IPC companies started out as industrial motherboard manufacturers and have evolved into systems development. Some of the bigger application areas include Medical PCs, Panel PCs, digital signage and point of sales (POS) machines. Most significant IPC companies are moving in that general direction. It will good to see how the competitive IPC environment plays itself out over the coming years.

Digitimes quotes company chairman James Liu as saying:

"The planned large growth in consolidated revenues will come mainly from industrial automation product lines and embedded-computing controllers applied to medical care, transportation and general engineering."

(Original Article: Adlink aims to be second largest Taiwan-based IPC maker)