Increasing focus on renewable energy and environmental awareness are creating growth opportunities for electronics manufacturing service (EMS) providers. More electronics manufacturers are broadening their product portfolios to penetrate renewable energy and smart grid markets. With competition shaping the EMS business model, the ability to pursue and sustain growth opportunities will be crucial for success. Key factors such as operational efficiency, competitive cost structures, strategic growth and geographic expansion will remain the primary drivers for outsourcing from OEMs.
As a result, outsourcing opportunities from OEMs in renewable energy and smart grid markets are gaining momentum.
OEM outsourcing trend
As OEMs contend with price pressures, their dependence on EMS providers is expected to increase steadily. The cost benefits derived from EMS providers’ improved process control and manufacturing expertise will remain a primary driver for increasing the role of EMS providers in the renewable energy and smart grid markets.
OEMs also require support to manage the dynamics of fluctuating manufacturing volumes and deliver products to market on time. Growth in demand for solar panels has necessitated that OEMs increase manufacturing capacity. As OEMs try to navigate global markets, the global footprint of EMS providers is creating opportunities for equipment makers seeking to take advantage of rising environmental awareness.
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This situation puts EMS providers at an advantage. The electronics industry has a well-rounded understanding of the benefits of contract manufacturing. The established prowess of EMS providers in all facets of services—ranging from design support to distribution—has already overcome many entry barriers.
Weighing success factors
The renewable energy and smart grid markets are expected to follow other vertical markets that outsource to EMS providers. While the potential for additional revenue generation exists, the real question is how significant it will be?
The EMS market’s compound annual growth rate in renewable energy markets is expected to reach between 15 percent and 20 percent year-on-year. EMS market revenue from renewable energy is nevertheless expected to remain significantly lower than revenues generated by the consumer electronics or telecom markets.
Renewable energy and smart grid will nonetheless play a crucial role in diversification strategies and risk mitigation for most EMS providers.
Not all EMS providers are expected to carve a substantial niche in the renewable energy sector. Tier I EMS participants have a clear advantage over smaller participants based on manufacturing capacity, access to cost-competitive markets and the ability to competitive on price. For many aspiring EMS providers the key questions are:
• What will an entry strategy revolve around? If it is based on price, does the company possess the financial stability needed to support of a new initiative?
• Will diversification provide a sustainable growth platform for the long term?
• Does diversification complement the corporate strategy and business model?
• Who are the direct competitors?
Success for EMS providers requires a thorough understanding of the business environment for renewable energy. One factor is the sector’s heavy dependency on government support. Penetrating the renewable energy market will require that EMS providers broaden their offering and raise their visibility through improved communications.
The renewable energy and smart grid markets are constantly evolving. As their budget constraints increase, OEMs will aim to increase competitiveness by forging strategic alliances with EMS providers. Consequently, renewable energy will continue to provide greater opportunities for electronics manufacturers. For EMS providers, success lies in proper execution in delivering the goods. The winners will be separated from the wannabes by the ability to take on new energy opportunities without missing a beat while providing OEM partners will concrete results in these emerging markets.
Many of the manufacturers in the energy sector are the heavy electrical and mechanical equipment / component manufacturers that ALSO have a presence in electronics manufacturing (Mitsubishi, Siemens, etc.), whether it is IDM or contract manufacturing model. It is natural to expect them to form alliances with EMS players for emerging opportunities like smart grid. This is nothing new nor enlightening. What would be nice to know is how these EMS players KEEP the same business model that has brought them success and worked for electronics in the energy/renewable energy/smart grid area?
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