EMS Providers Increasing their Presence in Mobile PC Market

Electronic manufacturing services (EMS) providers are set to make inroads into the dominant position of Original Design Manufacturers (ODMs) in the mobile PC market, with the EMS share of shipments projected to more than double from 2009 to 2014, according to iSuppli Corp.

While ODMs are expected to continue accounting for the vast majority of mobile PC shipments in the coming years, EMS companies will experience a rapid rise in volume, with their share of worldwide shipments rising to 8.6 percent, up from a mere 3.4 percent in 2009. Meanwhile the share of shipments from ODMs will decline slightly to 84.6 percent in 2014, down from 86.2 percent in 2009. ODMs will limit their share declines by continuing to take over from the in-house manufacturing operations of brands.

“Taiwanese ODMs such as Quanta and Compal long have held sway in the mobile PC market, manufacturing nearly all mobile PCs sold by the major computer brands, including Hewlett-Packard Co. and Dell Inc.,” said Jeffrey Wu, senior analyst for EMS & ODM at iSuppli. “However, the continued expansion in the mobile PC market is yielding lucrative growth opportunities that are attracting new competitors to the manufacturing sector, particularly EMS providers. The EMS providers already have changed the highly competitive mobile-PC supply chain and will exert even greater influence in the future.”

Mobile PCs keep moving
Despite the recession in 2009, the mobile PC industry demonstrated extremely robust performance relative to many other electronic products, which suffered stagnation or even contraction as the world underwent the worst economic turmoil in decades.

Global mobile PC shipments in 2009 rose 19.6 percent to 166.9 million units, and shipments will more than double by 2014, reaching 371.5 million units.

Foxconn and Flextronics muscle in on mobile PCs
Eyeing the lucrative growth potential in the mobile PC industry, heavyweight EMS providers such as Hon Hai—a.k.a. Foxconn Technology Group—and Flextronics began to tap the mobile PC ODM business in 2007 and 2008. The two EMS providers have been expanding their R&D teams aggressively and in 2009 started to win meaningful programs from Tier 1 OEMs, including Hewlett-Packard and Dell.

Leading EMS provider Hon Hai traditionally served smaller players in the mobile PC manufacturing industry like Apple Inc. and Sony Corp., building systems for these brands purely on an EMS basis. In 2008, Hon Hai decided to expand its presence in the already crowded competitive landscape.

Hon Hai currently bases its mobile PC R&D activities in Taiwan and already has built a sizeable team of 1,000 engineers. Its mobile PC production is administered mostly in Shenzhen and Yantai in China.

So far, Hon Hai has been growing its mobile PC operations organically, recruiting engineers from established ODMs such as Quanta and Compal to accomplish its mission. However, Hon Hai’s competition for customers and R&D engineers with the ODMs has generated tension that jeopardized its component business relationships with them. In response, Quanta, Compal and Wistron either established their internal components—such as connectors—and mechanical parts operations, or began sourcing these parts to alternative suppliers besides Hon Hai.

iSuppli believes that for EMS providers to further expand their share in the mobile PC industry, it is essential that they develop original design capabilities, a service offering highly sought after by OEMs hoping to reduce their R&D expenses.

iSuppli