Nonconsumer electronics still key market for China EMS

China EMS providers pursue opportunities in the automotive, medical, telecom, instrumentation, defense and aerospace sectors.

China EMS companies continue to take full advantage of being at the center of this still expanding industry, notwithstanding the few foreign players crowding the market. They welcome the business from the sidelines in the dynamic consumer electronics segment, accepting high-mix, low-volume orders not accommodated by these large suppliers. This is while concentrating on the high-value but less competitive automotive, medical, telecom, instrumentation, defense and aerospace sectors.

ABP Electronics Ltd derives about 70 percent of sales from automotive, security, medical and telecom products. In 2017, it will emphasize the first and those for defense applications. As for Shenzhen Leadsin Technology Co. Ltd, about 90 percent of its revenue comes from the industrial, security, medical, instrumentation and automotive fields.

Makers also aim to leverage recent positive developments such as the slowing of the rate of local wage increases. From about 14 percent average rise in 2015, this year's first quarter posted 7.3 percent uptick only, which will drop to 6.7 percent in 2017, according to Goldman Sachs. There is the depreciation of the yuan as well. The forecast by year-end is about 5 percent from 6.1 percent in 2015.

The growth projection for the China EMS industry will stay at about 10 percent in coming years. In the global sector, CAGR is at almost 9 percent from 2016 to 2021, according to BCC Research. The market is expected to hit $561.2 billion by this year's end and $845.8 billion in 2021.

The top 50 companies or 5 percent of the world's EMS providers account for approximately 75 percent of sales. They include Foxconn, Flextronics and Jabil.

The three suppliers conduct production activities in China. New Kinpo, Celestica, Sanmina, Benchmark, Celestica and USI are the other major companies with facilities there. Together with small and midsize domestic enterprises, they make up the 2,000-strong EMS pool in China.

The key production hubs are in the Pearl River Delta and Yangtze River Delta regions, and the Bohai Bay Rim Economic Region.

Local one-stop services

R&D, material procurement, production, QC, finished products assembly, logistics and aftersales remain the typical services package of China EMS providers. To enhance this, manufacturers continue to strengthen SMT capability and maintain DIP lines to meet various requirements.

ABP, which added three SMT lines in 2015, has a total of five, in addition to two for DIP. Shenzhen Well-Wisdom PCB Co. Ltd operates six SMT and four DIP lines. TDF Circuit Co. Ltd's factory is equipped with three SMT lines and one for DIP. Shenzhen Leadsin's five SMT lines, which include Juki machines, have a daily production capacity of 8 million points. The supplier has three DIP lines and one for assembly as well.

Local companies can place 0402, 0201 and 01005 components, and ICs in SO, SOP, SOJ, TSOP, TSSOP, QFP, BGA and U-BGA packages. All have the equipment for automated optical and in-circuit testing, and X-ray machines, and follow RoHS guidelines.

Manufacture complies with ISO requirements, with ISO 9001 still the most commonly adopted. Shenzhen Well-Wisdom has ISO 9001:2008, ISO/TS 16949:2009 and ISO 14001:2004 certification, and ABP ISO 9001:2008 and ISO/TS 16949:2009.

China EMS providers cater to customers mainly in Europe and the US, but are also exploring opportunities in South and Central America, Asia and Africa.

They are likewise boosting local presence. Shenzhen Leadsin now derives about 25 percent of revenue from this segment, which was 20 percent in 2015. ABP generates a third of sales from the domestic market, which it began targeting in 2010.

Suppliers continue to rely on foreign companies and their sales agents in China for ICs. Atmel, TI, Fairchild, Toshiba and STMicroelectronics are still the primary sources. The rest of the materials and components come from the local supply.

Prices are forecast to remain unchanged until 2017 due to competition.