Electronics manufacturing: EMS at a crossroads

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The electronics manufacturing industry is undergoing tremendous change. After a sharp decline in 2001 and 2002, the information technology market has stabilized and is growing again. China and other Asian countries have emerged as crucial locations for manufacturing centers and new market opportunities. Meanwhile, pricing pressure on technology products continues to affect an expanding array of markets. And original equipment manufacturers continue to use a horizontally disintegrated manufacturing model in which more functions are outsourced, in response to this pressure on profit margins.

These changes are affecting participants across the electronics manufacturing value chain, and are especially challenging for electronics manufacturing services (EMS) providers. The EMS segment surfaced in the last decade to provide outsourced services, such as assembly, repair, and design to original equipment manufacturers (OEMs). After the market’s sharp ascent and equally sharp decline, EMS vendors in 2004 are repositioning themselves for renewed growth and increased profitability. The question is: Which EMS business architectures will be successful? Even among the largest EMS vendors, views diverge as to what constitutes the best strategy.

In this report, PricewaterhouseCoopers analyzes the opportunities, threats, and challenges faced by EMS vendors. We review the evolution of the electronics manufacturing industry and its growing dependence upon outsourced service providers to understand the true role of EMS providers. We then analyze EMS business models and the financial performance of the largest EMS vendors for the period from 1997 to 2003 to identify why EMS providers are in their current position. Finally, we conclude with strategic and tactical recommendations as to how EMS vendors can succeed within the dynamic electronics manufacturing industry.

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