In 2014, combined sales of the top 50 EMS providers reached nearly US$265bn. While not all of this revenue is pure EMS—there is some ODM and other non-EMS business—it is a clear indication of how much OEMs now depend on the EMS industry. The combined 2014 sales of the top 50 EMS companies increased 4.0% from the previous year. This result should not be surprising, given Apple’s launch of the iPhone 6 and the iWatch series, which increasingly contributed to revenue for a few EMS providers.1
There were four completed M&A transactions in the EMS industry during Q1 2015. These include Summit Equity Group's acquisition of Niche Electronics Technologies Inc. (March), Season Group USA's acquisition of Xytronics Ltd (March), Cyient Limited's acquisition of Rangsons Electronics Pvt Ltd (February) and Corridor Capital's acquisition of Circuitronics Inc. (January).2
EMS consolidations were down from last quarter, representing one, or 25% of Q1 2015 transactions, compared to two in Q4 2014. On a comparative basis, this is down significantly from the six EMS consolidations in Q1 2014.2
There was one vertical/horizontal convergence in Q1 2015, down from three in Q4 2014 and also down on a comparative basis from the three reported in Q1 2014. Vertical/horizontal convergences have continued in recent quarters as companies outside of the “pure play” EMS industry have renewed their interest in EMS and expanded horizontally.2
In the next five years, the mobile phone market is expected to have the highest growth potential in the EMS and ODM industry. The success of Xiaomi, a company that focuses on marketing and brand promotion while entirely outsourcing manufacturing to its contract vendors, propels EMS and ODM services. Xiaomi's success has led a large number of mobile phone companies to follow suit, which opens a wide space for EMS and ODM vendors. Samsung and LG may commission EMS and ODM vendors to partially conduct manufacturing. The EMS and ODM market for communication terminals is expected to jump from US$30.8bn in 2013 to US$35.2bn in 2017.
In the global EMS and ODM industry, there are about 300-350 companies with high industrial concentration. The top eight enterprises have about 81% of market share and serve large customers. Accordingly, medium-sized enterprises find it hard to see growth. About 75% of EMS and ODM vendors globally are Taiwanese companies represented by Hon Hai, Quanta, Pegatron, Compal, Wistron, Inventec, New Kinpo and Universal Scientific Industrial (ASE).3
Arrow Electronics reported Q1’15 net income of US$106.1mn compared with net income of US$107.1mn in the first quarter of 2014. In Non-GAAP terms the first quarters’ of 2015 and 2014 net income would have been US$127.8mn in the first quarter of 2015, compared with net income of US$124.0mn in 2014. First-quarter revenues, adjusted for the impact of acquisitions and changes in foreign currencies, increased 3% year over year. First-quarter revenues declined by 2%, to US$5bn, from revenues of US$5.08bn in the prior year. Components sales in the Americas were flat year over year. European components sales grew 10% year over year on a constant currency basis. Sales in the region, as reported, declined 7% year over year after including the impact of foreign exchange rates. Global enterprise computing solutions segment’s Americas sales grew 8% year over year. European sales grew 8% on an as-adjusted basis. First-quarter cash flow from operations was a negative US$242mn.
Flextronics’ net sales for the quarter ending March 31, 2015 were just under US$6.0bn. Despite lower revenues, adjusted operating income only decreased US$4.0mn compared to the same quarter last year, with operating margins improving by 30 basis points to 3.0% from 2.7%. Flextronics’ adjusted income grew 8% to US$157mn for the quarter. In other news, Flextronics has entered into a definitive agreement to acquire Mirror Controls International (MCi) from private equity firm Egeria in an all-cash transaction valuing its share capital at €457mn (US$494mn). MCi is a global manufacturer of glass and power-fold mirror actuators in the automotive market and generated approximately €200mn (US$216mn) in LTM revenue, growing over 20% year over year.