Listen to this article
Flextronics, the US electronics manufacturing services company with headquarters in Singapore, is targeting Taiwan's manufacturers of original designs (ODMs) as customers in an attempt to confront Hon Hai, its Taiwanese rival which has overtaken it as the global EMS leader.
The move highlights the shifts in the outsourcing sector as the technology industry matures.
EMS companies like Flextronics started out as manufacturers of branded electronics goods. But since slowing growth and consolidation among customers has squeezed margins, EMS firms have encroached on the turf of ODMs, which not only produce but also design products sold under other brand names.
To tap the Taiwanese ODM sector, which leads the world in contract-manufacturing for products such as desktop and notebook computers, Flextronics is adjusting its strategy.
“The major Taiwan ODMs are going to be our customers. That's the plan,” said Michael Marks, chief executive. He added that Flextronics intended to increase revenue from Taiwanese customers to US$400m in its current fiscal year from US$100m last year and just US$15m in 2004.
Flextronics had decided not to compete with ODMs, at least not in the personal computer segment, but to co-operate by only offering components such as power supplies, sheet metal and plastic parts.Margin pressures might convince an increasing number of ODMs to outsource manufacturing of some components.
The move comes as Hon Hai, Taiwan's largest privately owned manufacturer, overtakes Flextronics to become the world's largest electronics contract manufacturer. The Taiwanese company saw its revenue rise to US$17bn last year compared with US$15.9bn posted by Flextronics in fiscal 2005.
Hon Hai has started to threaten Flextronics in the contract manufacturing of handsets, the US company's strongest business segment which contributes 32 per cent to its revenue. Mr Marks rejected the idea that Flextronics and Hon Hai were locked in a bitter battle for market share. “I don't think of this as a zero sum game,” he said.
But industry experts said Flextronics' plan to forge close relations with ODM companies could be seen as a counter-move that would result in poaching customers from Hon Hai and targeting one of the core business segments of the Taiwanese rival.