Interview with Randall Sherman, New Venture Research on the MMI Top 50

This week NVR released their latest findings for the top fifty EMS companies and it looks like 2018 was a banner year. We caught up with Randall Sherman to get his take on the results.

EMSNOW:  The MMI Top 50 is a highly-anticipated ranking of the EMS industry. This year’s report was just released. Could you give us a summary of the findings?

Randall:  In 2018, the Top 50 sales represented $333 billion in revenue – an increase from $301 billion in 2017.  Top 50 sales increased from the previous year by 10.9% largely as a result of top ten EMS firms performing exceptionally well. Companies such as Foxconn, Pegatron, Flex, Jabil, Sanmina, Wistron, Celestica, New Kinpo, USI and Plexus attained growth rates ranging from -0.7% (Wistron) to 17.8% (Jabil). Foxconn alone achieved revenue growth of 10.8% from 2017 to 2018. Without Foxconn, revenue growth of the Top 50 would have averaged 11.0%.

EMSNOW:  We at EMSNOW are very familiar with the agonies and ecstasies or producing a report like this. Please share a bit of the process of putting this together.

Randall:  The MMI top 50 is achieved by completed surveys within the industry. We are fortunate in that we have achieved approximately 90% completion rate (large EMS companies like Foxconn and Flex do not respond but we obtain their information from the internet). People seem very keen on knowing their ranking in the industry and how other companies perform each year. There are quite a number of private companies surveyed which are critical to the rankings.

EMSNOW:  What is the history of this report. When did it first publish?

Randall:  The top 50 list was first published in 1997. Earlier lists in years previous only listed the top 30 or the top 20.  MMI is now owned and operated by New Venture Research (NVR).

EMSNOW:  What was the most surprising result from this year’s findings?

Randall:  We have had two years of very robust growth – exceeding 10% annually. This is more than double the OEM market growth indicating the strong success of the outsourcing business model.

EMSNOW:  How has the EMS industry evolved in the past few years, and where do you see it going in the future?

Randall:  The EMS industry has been undergoing consolidation and will continue to do so in the future. While growth and acquisitions were the trend of the decade starting in 2000, the next decade we have seen the weeding out of weaker companies and M/A focused on customer acquisition. With high demand for EMS services there is going to be a lot of competition for new OEM assemblies. Also, we are starting to see the consolidation of the supply chain that is moving both up and downstream to acquire more services such as System in Package (SiP), multi-chip modules and even foundry test services. We expect to put out a new report this year that explains this trend and describes the vast amount of cross-investments being made today by Asian suppliers in components and supply chain.

EMSNOW:  What are the strengths of the industry that allows it to continue to evolve and adapt to changing business conditions?

Randall:  The EMS industry is able to take advantage of economies of scale by providing better expertise and allowing the OEM to focus resources into new products. It is a transactional business model with no fixed costs, at least for the customer. It frees up capital for other purposes and provides a hedge against changing technology. More important, it just makes economic sense although there is a lot of abuse at times coming from the OEM side. EMS companies seem to thrive on the challenge.

EMSNOW:  The electronics industry is experiencing explosive growth in new applications and connectivity. Do you think the EMS industry can accommodate that growth profitably?

Randall:  Well, that is the question, is it not? In the first decade of 2000, EMS companies lost so much money there was negative equity in their companies. Now that a shakeout has occurred in this decade, EMS firms are much healthier economically and each year are making record profits (although low gross margins in the larger scale of things). Companies like Jabil are now paying dividends, and numerous smaller, private firms are achieving a return on sales of 10%-20%.

EMSNOW:  What other thoughts do you have about where the industry is headed in the next five years?

Randall:  The emergence of EMS 30 years ago was enormously disruptive. There was a huge shift in money from the OEM side to the EMS side, where today the industry is $480 billion in 2018. EMS controls about 40% of the assembly revenue so you have to ask how much of that other 60% market is available for EMS? All the low hanging fruit has been picked but there are still many exciting opportunities in the automotive, aerospace/avionics, industrial and medical industries. Most of the computer and communication industry have been lost to low-cost Asian suppliers and is not coming back. (It makes you wonder what was Foxconn thinking when it proposed an LCD/LED panel factory for Wisconsin, now reduced to just an R&D center.) Some products are simply not outsourceable, but still are if the Asian OEMs will ever release them. Yet, if EMS can lead the charge in the next generation of 3DIC devices, the future for them is going to be very bright.