EMS Top 50
How M&A and India Will Reshape the Electronics Manufacturing Landscape
Covid grabbed all the headlines in 2020, but other longer-term stories began to emerge. by Mike Buetow

For most, 2020 can be summed in one term, and that term is Covid-19, of course. The pandemic disrupted supply lines, shut down factories around the world, and pushed many companies to the brink of financial collapse, to say nothing of the extraordinary and tragic loss of life.

Covid affected everything, but the rebound was sharp and quick. Manufacturers reconfigured assembly lines to tool up for medical devices like ventilators and face masks. The financial hit from the viral tsunami that erupted from China, which undertook a nationwide shutdown in February 2020, and rippled throughout Europe and North America in the following months, led to ugly June quarters for most. Certain industries, such as commercial aerospace, have yet to recover. Yet by the fourth quarter most markets had returned to life, and balance sheets were for many firms not only looking better sequentially, but even year-over-year.

Still, logistics curtailed some potential growth, and shipping was delayed due to a variety of reasons, including customs delays and lack of personnel throughout the supply chain. Most significant, component availability reared its ugly head.

Some 69% of EMS companies in Europe saw revenues decline in 2020, says market research firm In4ma, based on an analysis of 191 EMS companies.1 Europe was hit hard thanks to slumps in its core automotive and industrial sectors, adds in4Ma CEO Dieter Weiss. Industrial electronics fell $330 million and auto electronics were down another $243 million, offset in part by a $158 million increase in medtech.

All in all, it was a year as dramatic as any in memory.

While Covid’s ills were felt all over, the largest players seemed almost immune. Four of the top five companies in this year’s CIRCUITS ASSEMBLY Top 50 reported higher revenues for calendar 2020, as did seven of the top nine. (No. 10 TPV was taken private in 2019 and its revenues are estimated.) All in all, however, only about 40% of this year’s ranked companies saw sales climb.

As a truly historic event, the pandemic gobbled up all the headlines last year. In doing so, it overshadowed two emerging stories that will likely have much longer-term effects on the electronics manufacturing services industry.

One was manufacturer migration or, more accurately, expansion. China shows no signs of ceding control over production assembly, but three countries are staking claim to a bigger piece of the ever-growing pie. In order, those are India, Mexico and Vietnam.

The New China(s)

Indeed, supply chains are becoming more distributed, but not necessarily to the West. India is trying to scale into a manufacturing powerhouse. If our predictions are correct, it will surpass Europe as the third-largest market for EMS by 2030, behind China and North America. The domestic government is intent on growing both the indigenous and expatriate business, and Dixon Technologies this year becomes the first homegrown Indian EMS company to make the CIRCUITS ASSEMBLY Top 50 (TABLE 1). If past is prologue, others won’t be far behind. Just look how Taiwan and China, other nations with a top-down focus on advanced electronics manufacturing, are making their mark today versus 2007, when there were nine companies from those countries in the Electronics Business top 50 rankings.

In philosophy and approach, India is looking more and more like China circa the 1990s. At the top is its Make in India policy, a government-driven policy designed to encourage investment and build world-class manufacturing infrastructure in the country. The stated goals of the program, now nearly a decade old, include a manufacturing sector growth rate of 12 to 14% per year.

It’s already paying off in certain sectors. The number of mobile phone manufacturing companies rose from two in 2014 to 268 by 2019, and the share of phones built in the country for domestic consumption is now 95%.2

A similar tact is being taken with IT hardware. Under the Production Linked Incentive (PLI) for Large Scale Electronics Manufacturing, introduced in March, India offers incentives of 1% to 4% on incremental sales (over base year) of goods manufactured domestically, to eligible companies for a period of five years.3 In short, companies building tablets, laptops, PCs and servers agree to invest predetermined amounts in manufacturing plants. India, in turn, pays cash back to those manufacturers. To date, MNCs like Foxconn, Wistron and Dell have signed on, as have local EMS firms, including Dixon Technologies, VVDN Technologies and Syrma Technologies,4 while Flex (no. 7), Inventec (no. 8) and others are circling.5

India’s homegrown EMS market remains nascent, but for the first time a local company is ranked in the CIRCUITS ASSEMBLY Top 50. Buoyed by the consumer (key customers include Samsung and Nokia) and industrial markets, Dixon checks in at no. 37. With 14 factories directly or through its Padget Electronics subsidiary in the country so far, and another announced for South India, it shows no signs of slowing. Most of the significant players in the nation remain expats (Foxconn, Jabil, Wistron, etc.), but domestic powerhouses such as VVDN are beginning to crack into EMS, and could well reshape the landscape in coming years.

The PLI is emblematic of the maneuvers governments are making to attract foreign investment and boost domestic manufacturing. Using a mix of tax credits, direct cash payments, or tariffs, governments are transforming the laissez faire approach favored under World Trade Organization rules. Expect this to continue to reshape the EMS landscape long after Covid has receded.

Not all countries will benefit from this newfound activism. Mexico looks to be a winner under the new United States-Mexico-Canada Agreement (USMCA) trade pact. (As background, some 23% of US exports go to Canada and Mexico, while Mexico sends more than 70% of its exports north, a figure that could increase as the US tries to cut the cord with China.6)

Still, a rising tide doesn’t always lift all boats. While Foxconn (no. 1) and Pegatron (no. 2) contemplate expanding south of the border, UMC Electronics (no. 24) is shuttering operations there, saying the automotive demand never materialized as expected.

Vietnam is trending as an alternative to China. Foxconn says it will invest $700 million in the Southeast Asian nation, and Pegatron, Compal (no. 3), Universal Scientific Industrial (no. 11), Sumitronics (no. 28), Valuetronics (unranked at $300 million in sales), Wong’s International Holdings ($406 million), DBG / Huizhou Daya Bay Guanghong Electronics ($354 million), and Suga Technology ($180 million) are among the larger EMS firms adding factories there.

Table 1. The CIRCUITS ASSEMBLY Top 50 EMS Companies, 2020
Table 1. The CIRCUITS ASSEMBLY Top 50 EMS Companies, 2020

“The world factory no longer exists,” Foxconn chairman Liu Young-way said last August. Reuters reported Liu said about 30% of the company’s products were now made outside China, and the ratio could increase,7 although such statements from the world’s largest ODM should always be met with a healthy dose of skepticism.

Although, at less than 100 million people, Vietnam probably lacks the population base to make a significant dent in the geographical world EMS market share. Nevertheless, its combination of skilled workers, compatibility with Western businesses, and generous tax incentives will spur substantial continued investment in the country. (Income from investment in manufacturing supporting industrial products is exempted for the first four years, then taxed at 50% the standard rate for the subsequent nine years, and at a preferential rate of 10% for 15 years.)

Private Eyes

The problems posed by Covid-19 couldn’t stop the world’s investment bankers for long. Merger and acquisition activity really heated up, even as the number of deals closed was delayed in part because would-be buyers couldn’t perform their due diligence. Buyers were out in force looking for deals, led primarily by private equity firms both with and without longstanding ties to the industry. Among the newsworthy private equity-led deals were the acquisition of SMTC for $171 million by H.I.G. Capital and Creation Technologies’ (no. 43) acquisition of Applied Technical Services. As of this writing, Neways (no. 44) and SVI Public Co. (no. 48) are being courted by major shareholders seeking to take them private.

In the US, Emerald EMS (the merger of DataEd, Bestronics, Saline Lectronics and Veris Manufacturing), Virtex (which acquired Altron this year, its fifth deal), Zentech (CAMtek, Trilogy Circuits), Intervala (Varitron-NH, Princeton Technology), and East West Manufacturing (Varitron-Canada, Team Manufacturing, General Microcircuits and Adcotron) are among the smaller-tier companies primarily owned by outside investors that are pushing through acquisition into the higher atmosphere.

The largest transaction, of course, was Universal Scientific Industrial’s purchase of AsteelFlash. The combination of nos. 13 and 30 from the 2019 CIRCUITS ASSEMBLY Top 50 did little to change the overall rankings, but symbolically it harkened to the late 1990s and early 2000s, when the big getting swallowed by the bigger was commonplace. Will it presage another round of major buys, and if so, who is most likely to be caught up in the whirlwind?

Table 2. Currency Conversions
Table 2. Currency Conversions
Table 3. Top 50 Entrants by Nation
Table 3. Top 50 Entrants by Nation
End Comments

Even as private equity flexes its considerable muscle, there remain more than 115 publicly traded companies offering electronics manufacturing services either primarily or through a subsidiary. Although a growing number are traded on exchanges that such as Taiwan, Shanghai or Shenzhen that don’t require the same degree of disclosure as Western regulators, it still adds considerable color to the state and health of the industry.

Most major currencies fell against the US dollar in 2020 (TABLE 2). For those companies reporting revenues in non-US currencies, we converted the numbers using the averages set forth on May 14, 2021. Currency fluctuation will account for why some companies appear on some industry lists and not others. Likewise, CIRCUITS ASSEMBLY attempts in all cases to use the calendar year, not company financial years. Again, differing methodologies explain variances with other rankings.

Some lists rank New Kinpo Group (no. 14) higher than we do here. NKG includes the Cal-Comp ODM/EMS units, plus Kinpo Electronics, AcBel Polytech, Qbit Semiconductor, and XYZprinting, among others. It’s a classic example of a company whose reach extends beyond ODM/EMS work. Even within the ODM segment, the lines are muddy. To wit: Kinpo Electronics’ Thai factories, of which there are currently 12, with three more to start operating this year, all produce for Compal’s (no. 3) European and American customers.

Privately held Beyonics is reportedly on the block. PE owners ShawKewi & Partners reportedly seek $300 million to $400 million for the company, which they bought in 2012 for $95 million. Once a top 20 EMS firm, Beyonics fell considerably and reinvented itself from a maker of hard disk drives to a player in the higher-reliability automotive, industrial and medical sectors. This potential deal should be watched closely.

Automotive continues to reshape the EMS landscape. Between the rise of electric vehicles, which are gobbling up components at an accelerated rate, and the topsy-turvy markets, transportation has shifted the rankings of many of the Top 50 outside of the five largest Taiwan-based ODMs. As Foxconn speeds into the market, having announced deals with Fisker and Byton in the EV space, and with its key customer Apple looming, it serves as reminder that EMS companies that are geared to high-speed, lower-cost production and managing complex supply chains will find plenty of opportunity to motor on for years to come.

As always, any errors are the author’s.

References
  1. IPC Blog, “in4ma Releases Annual Analysis of European EMS Industry,” Mar. 1, 2021, ipc.org/blog/in4ma-releases-annual-analysis-european-ems-industry.
  2. India Cellular and Electronics Association (ICEA), August 2019.
  3. India Ministry of Electronics & Information Technology, Production Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing, meity.gov.in/esdm/pli.
  4. Priyanka Dua, “Micromax, Dixon Technologies, Lava Apply for IT Hardware PLI Scheme,” Gizbot, May 5, 2021, gizbot.com/news/micromax-dixon-technologies-lava-apply-for-it-hardware-pli-scheme-074090.html.
  5. Surajeet Das Gupta, “Flex to Inventec, Foreign Players See Potential in PLI for Tech Products,” Business Standard, Feb. 26, 2021, business-standard.com/article/companies/flex-to-inventec-foreign-players-see-potential-in-pli-for-tech-products-121022600075_1.html.
  6. Joshua P. Meltzer, “The Importance of USMCA for the Biden Administration’s Economic and Foreign Policy,” Brooking Institute, Apr. 28, 2021, brookings.edu/blog/up-front/2021/04/28/the-importance-of-usmca-for-the-biden-administrations-economic-and-foreign-policy.
  7. Sumeet Chatterjee, Yimou Lee and Anthony Esposito, “Foxconn, Other Asian firms Consider Mexico Factories as China Risks Grow,” Aug. 24, 2020, reuters.com/article/us-mexico-china-factories-exclusive/exclusive-foxconn-other-asian-firms-consider-mexico-factories-as-china-risks-grow-idUSKBN25K17X.
Mike Buetow is editor in chief of PCD&F/CIRCUITS ASSEMBLY ; mbuetow@upmediagroup.com.