EMS/Distributors

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Market analysis

As a group, EMS companies in our sample had a slow quarter, posting a 3.6% decline in revenue year on year but a sequential increase of 7.3%, led by the seasonal holiday push. In terms of revenue, Flextronics had the greatest year-over-year decline of 9.6% to US$6.1 billion. In terms of net income, Avnet had the sharpest decline of 79% year over year. Overall, net income increased by 83% sequentially, but declined year over year by 27.6%. 

The EMS industry is closely following the growth projection of the overall OEM electronics market, which has been growing 2–3% a year. Most of the growth has been channeled into the commodities market—smartphones, PCs, tablets and digital televisions—dominated by the largest EMS and ODM suppliers. But of more interest to the broader industry is that there has been some good growth in the high-complexity industries such as industrial, medical, aerospace and automotive. This expansion in outsourcing is expected to continue as the benefits of subcontracting production become increasingly proven to the OEM world. Slowly, Asian OEMs are starting to question the significant capital investment needed to run their own in-house manufacturing. This is going to become increasingly apparent as the lines between IC foundries, advanced packaging and EMS assembly blur.1

Foxconn Technology Group, a major EMS player is in preliminary discussions to make an investment and expand the company’s US operations. Apple has also begun exploring the possibility of moving smartphone production to the United States.1

Electronics manufacturing overall is expected to experience slow growth in early 2017.  Printed circuit board (PCB) book-to-bill ratio is based on three-month rolling averages of orders and sales, and normally leads PCB sales by three to six months. After three months of positive and strengthening ratios, the ratio fell to 0.99 (below parity) in November 2016, due to weak orders in recent months. Ratios below parity (1.00) indicate greater supply than demand, which may be a precursor of slowing or negative sales growth for electronics manufacturers. These indicators suggest the likelihood of slow growth in early 2017 with some volatility.2

In company news, Ingram Micro Inc and HNA Group announced the completion of the merger on December 6th, under which Tianjin Tianhai Investment Company, Ltd, a publicly-traded subsidiary of HNA Group, acquired Ingram Micro for US$38.90 per share in an all-cash transaction with an equity value of approximately US$6 billion. Ingram Micro will cease trading on the New York Stock Exchange, but will remain headquartered in Irvine, California and will continue to be led by CEO Alan Monié.

Avnet, Inc  announced in November that it has acquired a majority interest in Hackster, Inc (“Hackster.io”) as the first step of a two part transaction in which Avnet will acquire the remainder of the company in 2017. Hackster.io is an online community that helps users globally learn how to design, create and program Internet-connected hardware. Hackster.io engages with nearly 90 technology partners, and maintains 100 Hackster Live ambassadors that support a network consisting of close to 200,000 engineers, makers and hobbyists. The combination of Hackster.io with Avnet’s recently launched MakerSource resource directory and acquisition of Premier Farnell’s element14 community will allow start-ups to design and create new ideas, then quickly find the resources to support them as they prepare to take their product to market.

 

1. Manufacturing Market Insider, Jan 2017

2. https://www.pannam.com/blog/top-trends-and-challenges-in-electronics-manufacturing/