Introduction

Electronic manufacturing services (EMS) refer to companies that design, test, manufacture, distribute, and provide return/repair services for electronic components and assemblies for original equipment manufacturers (OEMs). The EMS industry has grown rapidly over the past several decades as OEMs have increasingly outsourced production to focus more on design and marketing activities. This article examines the outlook and future trends for the global EMS industry.

Key drivers of growth

Several factors are expected to drive continued growth and opportunities in the EMS market:

1. Increasing electronic content in products

Electronic content continues to increase in a wide range of products such as automobiles, appliances, consumer electronics, and medical devices. This results in increased demand for EMS as OEMs need help managing the growing complexity of their products.

2. Focus on core competencies

OEMs are increasingly focused on their core competencies like R&D, product design, and marketing. Outsourcing manufacturing allows them to focus their resources in these high value-added areas.

3. Access to advanced manufacturing capabilities

By leveraging EMS providers, OEMs can access sophisticated manufacturing infrastructure like SMT lines without having to invest capital and develop expertise themselves. This allows for faster time-to-market.

4. Supply chain consolidation

OEMs are reducing the number of suppliers to simplify supply chain management. Large EMS companies with global footprint are well positioned to benefit from this trend.

Key industry segments

The EMS industry serves a diverse set of end markets. Some of the major segments are:

1. Consumer electronics

Products like smartphones, tablets, wearables, and home appliances represent a major market. Competition is intense with highly variable demand.

2. Automotive

EMS companies manufacture complex electronics like engine control units and infotainment systems. Demand is increasing rapidly with higher electronics content per vehicle.

3. Industrial

Includes products like instrumentation, automation equipment, power supplies. Stable demand from continuous automation investment.

4. Medical

Fast-growing segment covering diagnostic equipment, patient monitoring, surgical tools. Highly regulated requiring specialized expertise.

5. Aerospace and defense

Sensitive and highly complex products like avionics systems and radars. Requires security clearance and certification.

Leading EMS companies

The EMS industry is fragmented with over 1000 companies globally. However, it is concentrated at the top with the top 10 companies representing nearly 60% of total revenue. Some leading EMS companies include:

• Foxconn – The largest EMS company based in Taiwan. Major supplier to Apple and other large tech companies.
• Flex – Singpore-based company offering complete design, manufacturing, and logistics services.
• Jabil – One of the earliest American EMS companies focused on innovation and smart manufacturing.
• Sanmina – Leading EMS company in high-mix, low-volume complex products.
• Celestica – Major Canada-based provider focused on aerospace, industrial, and medical segments.

Geographic trends

Asia Pacific

Asia Pacific represented over 45% of global EMS revenue in 2022. China is the single largest national market due to its unmatched manufacturing infrastructure and ecosystem of suppliers. Other major countries are Taiwan, Japan, and South Korea. Growth is expected to continue with increasing domestic demand and exports.

Americas

Represents around 25% of EMS revenue. The US holds close to 80% of the American market share. Presence of key end markets like aerospace, industrial, medical, and defense bolsters demand. Nearshoring by US customers is also increasing.

Europe

Europe accounts for around 25% of EMS revenue. Manufacturing capabilities exist in Eastern and Central Europe due to lower costs. Western Europe is focused more on high mix, low volume complex products. Strong presence in industrial, medical, aerospace sectors.

Key trends shaping the future

1. Growth of smart manufacturing

EMS companies are implementing analytics, sensors, automation, and other digital technologies to enable smart manufacturing. This increases quality control, reduces defects, and improves productivity.

2. Focus on EVs and other emerging segments

EMS providers are positioning themselves to capitalize on expected rapid growth in electric vehicles, renewable energy, 5G infrastructure which require electronics manufacturing support.

3. Expansion of design services

EMS companies are expanding offerings to include design services for prototypes, testing, and pre-production phases to provide greater value.

4. Supply chain resilience

Companies are adopting localization, nearshoring, dual sourcing, buffer stocking to make supply chains more resilient. Automation also improves reliability.

5. Sustainability

Sustainability is becoming critical with EMS companies reducing waste, energy use, emissions across their operations through initiatives like renewable energy procurement, material innovations etc.

Challenges facing the industry

While the future outlook is strong, there are some key challenges:

• Trade policy changes and geopolitical issues can suddenly shift demand patterns for EMS providers.
• Technology changes like EVs require updating capabilities which demands significant investment.
• Talent shortages especially for specialized skills needed in complex manufacturing.
• Continued pressure from OEMs to lower costs year-over-year while maintaining quality.
• High logistics costs and instability challenge margins and supply chains.

Conclusion

The EMS industry is poised for steady growth driven by increasing electronics content, OEMs focusing on core strengths, and access to manufacturing capabilities. Leading global providers are investing to capitalize on opportunities in emerging segments like EVs and 5G infrastructure. The future outlook remains broadly positive but EMS companies need to remain nimble and agile to adapt to shifts in end market demand, technologies, and public policy.

Frequently Asked Questions

What are the key product segments served by EMS companies?

The major product segments served by EMS companies are consumer electronics, automotive, industrial, medical, and aerospace/defense. Smartphones and other consumer gadgets form a high volume segment while regulated industries like medical and defense represent more complex, low volume opportunities.

Which geographic regions are most important for EMS companies?

Asia Pacific dominates with over 45% global revenue share driven by unmatched manufacturing scale and capabilities, especially in China. Americas and Europe represent around 25% revenue each with demand driven by key industries like aerospace, defense, industrial, medical devices.

What is the impact of emerging technologies like EVs on EMS demand?

Emerging technologies like electric vehicles, batteries, renewable energy, 5G telecom are expected to drive significant electronics manufacturing demand. EMS companies are investing to expand capabilities to capitalize on fast growing opportunities from these segments.

How are EMS companies enhancing competitiveness and capabilities?

EMS providers are turning to smart manufacturing initiatives like automation, IoT sensors, data analytics to boost quality and productivity. They are also expanding design services and improving supply chain resilience through localization, dual sourcing etc.

What are the key challenges faced by the EMS industry currently?

Key challenges are talent shortages, high logistics costs, frequent technology changes requiring re-investment, geopolitical issues disrupting trade flows, and continued pressure from OEM customers to lower cost. Maintaining profitability remains a constant challenge.