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Foxconn takes number-one rank in EMS

By ADAM PICK

May 30, 2006

Taiwan's Foxconn Electronics Inc. for the first time took the number-one position in iSuppli Corp.'s annual ranking of global Electronics Manufacturing Services (EMS) providers, displacing Singapore's Flextronics Corp.

Foxconn, AKA Hon Hai Precision Industry Co. Ltd., achieved EMS revenue of $27.3 billion in 2005, up a stunning 62 percent from $16.8 billion in 2004. This far exceeded the $15.6 billion in 2005 EMS revenue posted by number-two provider Flextronics.

Foxconn actually became the number-one EMS provider in 2004, according to iSuppli's revised rankings for the year. The company achieved EMS revenue of $16.8 billion in 2004, putting it above Flextronics' $16 billion total. iSuppli previously ranked Foxconn at number-two in 2004, but subsequent financial reports prompted iSuppli to upgrade the company's 2004 revenue estimate slightly and to raise its ranking from second to first.

Table 1 presents iSuppli's top-10 EMS market share rankings for 2004 and 2005.

Table 1:  Top-10 EMS Providers in 2005 (Ranking by Revenue in Millions of U.S. Dollars)
 

2005 Rank

2004 Rank

Company

2005 Revenue

2004 Revenue

2004-2005Annual Change

1

1

Foxconn

$27,315

$16,819

62%

2

2

Flextronics

$15,582

$16,062

-3%

3

3

Sanmina-SCI

$11,343

$12,484

-9%

4

4

Solectron

$10,207

$11,630

-12%

5

5

Celestica

$8,471

$8,839

-4%

6

6

Jabil Circuit

$8,057

$6,575

23%

7

7

Elcoteq

$5,179

$3,899

33%

8

8

Benchmark

$2,257

$2,001

13%

9

9

Venture

$2,007

$1,945

3%

10

10

Universal Scientific

$1,622

$1,663

-2%

Top 10 EMS Total 

$92,040

$81,917

12.4%


Source : iSuppli Corp. | May 200 

With its strong financial performance in 2005, Foxconn clearly has broken away from the pack and has established dominance in the EMS market. Compared to the rest of the EMS industry, Foxconn's prodigious expansion can only be described as an anomaly.

To put Foxconn's performance into perspective, compare it with that of Jabil Circuit Inc., which achieved the second-largest revenue gain on a dollar basis among all EMS providers in 2005. U.S.-based Jabil saw its revenues rise by $1.5 billion during 2005, which amounted to only 14 percent of Foxconn's $10.5 billion sales increase for the year.

Looking at the other top EMS providers, the picture was rather gloomy for the former industry stalwarts-- Flextronics, Sanmina-SCI, Solectron and Celestica--with the companies seeing sales decreases of 3, 9, 12 and 4 percent respectively during 2005.

The impact of Foxconn's growth on the EMS industry as a whole is best understood in the context of iSuppli's top- 10 rankings. With Foxconn, the top-10 EMS companies collectively increased their revenue by 12 percent. Without Foxconn, top-10 EMS revenue contracted by 1 percent.

What's behind this EMS anomaly? iSuppli believes the main reason for Foxconn's extraordinary success is Chief Executive Officer Terry Guo's strategy for managing the business.  

The Foxconn business model consists of a very competitive cost structure, vertical manufacturing capabilities, a complementary acquisition strategy and a diversified customer base of tier-one OEMs that have a propensity for outsourcing. These factors endow Foxconn with a competitive advantage.

Two other factors also are stimulating Foxconn's growth.
First, end-market demand for Foxconn's core business lines--PCs, wireless equipment and networking gear--has seen significant growth over the last few years as corporations have refreshed their computing needs and consumers have expanded their mobile-phone and home-networking purchases. Foxconn provides EMS services for high-profile customers in each segment, i.e. Dell Inc., Motorola Inc. and Cisco Systems Inc.

Second, unlike many of the other major EMS providers, Foxconn's operations have not been marred by extensive restructuring activities and program transfers from high-cost to low-cost regions.

Foxconn's anomalous growth is likely to continue in the future. It appears that the statistical "law-of-large- numbers" will not hinder Foxconn's growth rate for the next 24 months, with surveyed financial analysts projecting 30 percent growth for Foxconn in both 2006 and 2007.

Adam Pick is the senior analyst in the EMS/ODM service at iSuppli Corp. Contact him at apick@isuppli.com






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