EMS/Distributors

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Market analysis

The EMS sector saw mixed results this quarter. While average revenue declined by 1.6% year over year, it increased by 3.2% sequentially. Average net income also declined by 11.3% year over year, but showed growth of 4.8% compared to last quarter. Foxconn posted the strongest sequential growth in net income at 38%.

The quarter’s results indicate that neither the Electronic Manufacturing Services (EMS) approach nor the Original Design Manufacturer (ODM) model has enjoyed an appreciable advantage so far this year. The recent business model of contract manufacturers with hybrid capabilities is winning substantial amounts of both EMS and ODM business. Hybrid companies benefited from the rebound in demand for smart phones and tablets, as well as the uptick in momentum from traditional industries such as medical, industrial and transportation.1

Worldwide personal and entry-level storage (PELS) shipments declined 13% year over year to 16.7 million units in the third quarter of 2015, but were up 10% compared to the previous quarter. Shipment values declined along with unit shipments, down 20% from a year ago to US$1.3 billion. The adoption of cloud storage has led to shrinking demand within the PELS market. For personal storage, the majority of shipments were products with 1TB and 2TB capacity points. Regarding interface, USB had the highest demand.2

In company news, Flextronics bought NEXTracker, a designer and builder of single-axis photovoltaic (PV) trackers, for US$330 million, including an US$85 million earn out. Flextronics acquired the company to further expand its solar capabilities in commercializing smart and connected energy technologies. Under the terms of the agreement, the initial cash consideration will be approximately US$245 million, net of cash acquired, with an additional US$85 million of potential contingent consideration upon achievement of future performance targets.3

Arrow Electronics saw a decline in third-quarter 2015 net income of 26% year over year to US$109.2 million compared with net income of US$146.9 million. Sequentially it declined by 12%.

Foreign currency changes and the lack of demand from Asia resulted in an approximate sales decline of $US280 million. The company also initiated stock buybacks of US$50 million during Q3’15.

 

1. Manufacturing Market Insider, Sept 2015

2. IDC, Oct 2015

3. Greentechmedia, Sept 2015