Global EMS and ODM Market Overview
For the twelfth time in the past 15 years, combined revenue for the top 25 contract manufacturers (EMS providers and ODMs) grew in 2017. Last year, top 25 revenue totaled $410.5 billion, up 13.1% from 2016. Because the top 25 group accounts for 80–90% of revenue in the outsourcing space, this upward tick in revenue serves as an approximate indicator of how the contract manufacturing market was developing in 2017. Perhaps more encouraging than the increase in growth was the realization that the top 25 as a whole performed well and increased more than the global economy, which grew at a 3.5% rate in 2017, according to the International Monetary Fund. Longer-term industry attractiveness has been improved by a plethora of near-term catalysts. This suggests that expectations have risen modestly due to rapid growth in key end markets such as telecom infrastructure, computing, consumer/smart phones, and semi-cap equipment. High-complexity/low-volume end markets (e.g., industrial/medical/test) should garner solid results. In addition, M&A activity has picked up within the supplier (semiconductor) segment and industry opportunities appear stronger than ever. The Nokia/Alcatel deal bodes well for EMS as the parties are committed outsourcers.
Global EMS and ODM Market Trend
IT infrastructure, with data center or cloud computing services as the core, will constitute the biggest driving force. The server shipments will grow robustly in 2016, with an overall shipment estimated to increase by 13.5%. In particular, the ODM-Direct will rise by 20%. Server OEM and ODM-Direct are basically monopolized by the Taiwanese vendors, with a global market share of over 90%. Taiwan has a complete industrial chain of server, which is viewed as an extension of the computer. As the Taiwanese vendors have stronger and stronger technical ability, the future equipment cabinet solution of Server+Routing+Storage+Switching will gain more market space.
However, the European and US EMS/ODM vendors are dedicated to improving profitability by reducing the revenue proportion of telecom and communication infrastructure, and intensifying the expansion to industrial, medical, and automotive sectors. Meanwhile, they have also strengthened the weakness in components, and ventured into the upstream sector of industrial chains. But compared with the Taiwanese vendors, the European and US EMS/ODM peers lagged far behind in the field of components.
In the upcoming five years, the mobile phone market will embody the hugest growth potentials in the EMS and ODM industry. The success of Xiaomi that focuses on marketing hype and brand promotion while entirely outsources manufacturing to its contract vendors propels EMS and ODM services. Xiaomi's remarkable achievement stimulates 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 conduct manufacturing partly. The EMS and ODM market size of Consumer Devices is expected to jump from 130 billion USD in 2013 to 148 billion USD in 2017.
When there is a long-lasting trend for OEMs to outsource their manufacturing function either partly or entirely to contract manufacturers (CMs), otherwise called as manufacturing service providers, OEMs have different priorities in choosing their service providers. Among the CMs, while Electronic Manufacturing Services (EMS) providers involve only in assembling/testing and production of a product/sub-system, Original Design Manufacturing (ODM) providers move ahead in the front-end of the value chain to also involve in designing the product in addition to assembling, testing and mass production. ODMs are evolving faster in more matured sectors such as telecommunications and consumer electronics compared to specialised sectors such as automotive, industrial and defence. OEMs are less likely to choose ODMs compared to EMS for their CM activity due to some reasons such as OEMs having less control over IP rights, designs of PCBs, control boards, etc. ODMs are expected to mainly become potential competitors to OEMs.
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