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Tier-1 EMS Shifting to the HMLV Market Segment | June | 2013

Tier-1 EMS Shifting to the HMLV Market Segment

Abstract: The Electronic Manufacturing Service (EMS) Industry comprises two categories: HMLV (High Mix Low Volume) and LMHV (Low Mix High Volume). The HMLV market is fragmented and primarily catered by mid-size Electronic Manufacturer Services (EMS) whereas the LMHV market is primarily catered by large tier-1 EMS.


The supplier landscape will change as tier-1 EMS players Ravi Shankar Singh | Research Analyst

increase their focus towards the HMLV market. This will escalate the competition and enable buyers to consolidate their spend.

Copyright Š Beroe Inc., 2013. All Rights Reserved



EMS Classification

The HMLV market segments (Industrial, Medical, Aerospace & Defense) have been primarily been catered by Mid-Size EMS players (with 55%of revenue coming from HMLV segment). The LMHV market segment (Computers and Peripherals, Consumer Device, Telecommunication, Storage devices) is predominantly catered by large size tier-1 EMS. In the HMLV/LMHV, mix symbolizes the complexity or the customization of the product and volume means the number of units manufactured. "Tier-1 EMS players are increasing their focus towards HMLV market segment as it is growing at approximately 50% faster rate than LMHV market”

based on Revenue ● Tier-1 (> $2 Billion, large EMS players) ● Tier 2 ($ 500M to $ 2 B, Mid-size) ● Tier 3 ($ 100M to $500M, Mid-size) ● Tier 4 (Less than $ 100M, Small)

Why are Tier-1 EMS shifting their focus?

Mitigating Risk: In a dynamic EMS industry, mitigating risk is necessary as the competition in the LMHV EMS industry is increasing is increasing as the product life cycle matures which is resulting in lower profits. Tier-1 EMS depends on a limited number of large customer comprising a significant portion of their revenue. For Jabil Circuit and Flextronics, their five largest customers account for close to 50% of the net revenue thus the loss of a big client can result in loss in profits and EPS. Adding focus toward the HMLV segment will help mitigate and/or reduce risk.

Competitive Advantage: Mid-Size EMS players have regional presence with no end-to-end solutions for the buyers and their procurement model is transactional which acts as a bottleneck. Tier-1 EMS players have a global presence with a wide product portfolio and end-to-end solution moreover they have centralized procurement which helps them to procure in bulk thus passing on the benefits to the buyer giving tier-1 EMS players a competitive advantage. Global presence of tier1 EMS players makes it viable to manufacture HMLV products in the regions having high labour rates as the HMLV manufacturing is labour intensive Profit Margins: Tier-1 EMS players are motivated to move towards HMLV segment as they earn 4550% more profit margin as compared to LMHV segments as these are more customized products thus supplier have more negotiation power.

“HMLV offers higher margins for smaller quantities, but the challenge is in adapting the framework to meet the customer's expectations, rather than the EMS's needs. Shareholders demand continued EPS growth; HMLV offers an opportunity to grow EPS. High velocity clients are by their nature very volatile so HMLV helps spread risk� -Director Business Development, Tier-1 EMS



Few Competitors in the industry

Early Adopters of the product

● Entry of more competitors and market share cannibalization ● Products and services have less differentiation

Increase in demand from end consumer market

Price competition and acquisition

The selection for product/services becomes more niche and very selective by end-users

The market is highly competitive and is difficult to gain market share thus the exit of some competitors Decline in usage of product

Motivation Factors  Profit Margins  Growth rate in HMLV market  Risk Mitigation  High labour rates in Developed countries

LMHV market is at the peak of its maturity stage and has low growth rate. This lag between the two markets segments makes the HMLV market attractive for tier-1 EMS




Maturity Time

LMHV Market

HMLV Market

“HMLV is viewed as a potentially higher margin activity, however it comes at a cost, for example the additional accreditations, facilities, skill levels add to overhead” -Aerospace & Defense Director, Tier-1 EMS


Industry Shift- Who is Moving? Tier-1 EMS players like Flextronics, Celestica, and Jabil Circuits are shifting their focus from the LMHV market towards HMLV market. Tier-1 EMS Player 2012E

Tier-1 EMS Player 2014 (F)



Focus on HMLV segment

Focus on HMLV segment

Focus on LMHV segment

Focus on LMHV segment


88% Source: IDC, Annual Report

Tier-1 EMS

Jabil Circuits


Source: IDC, Annual Report

Growth in HMLV segment from 2009-2011

Strategic moves to focus on HMLV market in 2012


Jabil continues to focus on under-penetrated, rapidly growing areas like the industrial, medical, defense and aerospace verticals. Customer engagements in these sectors tend to be much deeper with longer product life-cycles and increased opportunity for cross-selling services.


1) In 2012, Flextronics acquired Stellar Microelectronics. This acquisition underscores Flextronics' strategic commitment to expand their service offering in the aerospace, defense and medical markets. 2) Flextronics expanded its Romanian medical operation in November 2011.



Celestica acquired D&H Company in 2012. This acquisition supports Celestica’s strategy to grow and diversify its revenue base in the Industrial, Aerospace and Defense, Healthcare end markets.

Impact on the Buyer  For buyers like medical device manufacturers it is necessary to get the right fit supplier as the products required are highly customized and critical involving human interface.

Buyers face challenges

 Buyers face challenges in identifying the right supplier in the HMLV market as it is highly fragmented. Consolidating their spend with few suppliers is difficult as these EMS players do not have a wide product portfolio.

size EMS players as they

 The shift of tier-1 EMS players will facilitate buyers like medical device manufacturers to centralize and consolidate their spend by having a complete end-to-end solution.

while engaging with midhave, poor supply chain visibility, lack of recognition and goodwill,

“Customers may wish to move away from having a large number of smaller EMS suppliers, to consolidating spend with fewer suppliers to gain better advantage/leverage. But, Tier-1 EMS are also astute, they are also looking to have a critical mass of important customers, ones who are looking for a partnership arrangement, preferably long term, ability to grow in terms of value and able to achieve a level of spend aligned with the EMS's strategy.” –Director, Tier-1 EMS

Conclusion HMLV Buyer

Current Scenario (2012)

Future Scenario (2014)

Mid-Size EMS players

Large Tier-1 EMS players

Spend Consolidation

It is difficult as buyers need to engage with many suppliers to procure product.

Buyer will engage with one supplier across all regions having wide product portfolio.

Supply chain visibility



Relationship between buyer and supplier

Short-term relationships as mid-size EMS players are not strategically aligned to buyers need.

Long-term relationships as tier-1 EMS players prefer strategic partnership.

Difficult to get due to narrow product portfolio.

Tier-1 EMS players have wide product portfolio.

Who controls the market?

End-to-End solution

limited financial strength.

Metadata Industry to be impacted Pharmaceutical

Food, Beverage & Tobacco

Aerospace and Defense


Oil & Gas

Medical Devices Manufacturers

Bank & Financial Services


Domain to be impacted Medical Devices

Fleet Management

Travel and MICE

IT and Telecom

Software & Hardware

Management Consulting

HR Services


Sourcing Opportunity

Supplier Intelligence


Substitute Opportunity

Supply Chain Risk

Input Cost

Price Outlook


Focus Area

Keywords Used Electronic Manufacturing Services (EMS) High Mix Low Volume (HMLV) Low Mix High Volume (LMHV)

References Disclaimer: Strictly no photocopying or redistribution is allowed without prior written consent from Beroe Inc. The information contained in this publication was derived from carefully selected sources. Any opinions expressed reflect the current judgment of the author and are subject to change without notice. Beroe Inc accepts no responsibility for any liability arising from use of this document or its contents. For more information, please contact:

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