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From the Editor
Birds of a Feather
December 31, 1969 |
Estimated reading time: 3 minutes
Its autumn in New England, and geese that spent the summer commingling with local waterfowl and nesting in small groups now congregate en masse to migrate south. The principle is simple with dwindling resources and increased dangers "on the road," birds align with other small flocks that share the common objective of reaching warmer climates. Nam Tai Electronics, a Macao, China-based design/EMS provider to consumer and telecom electronics markets and parent company to diverse operations, decided this week to reorganize its businesses, grouping PCBA, flex, and display manufacturing operations together under its EMS branch NTEEP, and shifting Namtek, a digital dictionary software provider, into a separate sphere of operation. The principle here? Grouping together like operations with a common market will cut overhead, streamline supply chains, and increase profits in the extremely cost-sensitive electronics markets.
Nam Tai faces a common dilemma in the consumer electronics market. Revenue rose from 2005 to 2006 (about $791 million to $870 million), but profits fell over the same time period (from about $51 million to nearly $41 million). Falling average selling prices (ASPs) in end markets continually challenge profitability, according to Matt Chanoff, economist and senior consultant, Technology Forecasters Inc. (TFI). The company needs to boost manufacturing efficiency; free up resources; and centralize engineering, supply chains, administration, and other management. In response, it plans to consolidate into the core EMS/design business of NTEEP an LCD manufacturer (Jetup Interest) and LCD module, flex PCB, and flex subassembly provider (Zastron). Namtek, a digital dictionary software solutions provider to the Japanese electronics markets, will be pulled out of NTEEP's manufacturing complex and into a holding company, J.I.C., that can focus on long-term investments and less capital-intensive operation. In short, the EMS/design/final assembly elements of Nam Tai will concentrate resources, interchange land, personnel, and manufacturing capacities more freely, and if all goes according to plan pull a better profit margin out of annual revenues.
Bundling like operations into NTEEP is predicted to double its manufacturing scale. Shedding the software company will also provide an estimated $8 million profit. Zastron brings additional land in Shenzhen, China, allowing NTEEP to relieve cost, security, and energy (namely water and electricity) pressures associated with its Baoan, Shenzhen facility. Zastron's three land parcels in lower-cost Wuxi and Guangming are anticipated to counteract the high overhead NTEEP is incurring within its current footprint. Connected transaction implications for NTEEP, Zastron, and Jetup would be eliminated, allowing for technology and manufacturing exchanges, sharing and reallocation of resources, and sales among the three.
In a mature market with cost-sensitive big-box consumers, profits are made as much within the company as from the customer. TFI's "Five Year Forecast" for ODM/EMS companies sees strategies to improve profit margins meeting mixed results. Companies vertically integrate businesses; pursue higher average margins in emerging sectors, or profitable niches within cost-depressed end-markets; or offer add-on services that can bring in more revenue than straight assembly. With a scattered infrastructure and non-core investments, EMS/ODM companies like Nam Tai allow profits to drain out into overhead. Grouping diverse manufacturing operations under one company founded in the principles of mass production and streamlined production may not led to leaping profits found in the "heyday" of contract electronics manufacturing, but it can preserve a business' competitive ability building profits incrementally based on sound operation. When market spending is less than liberal, it helps to have every affiliate working toward the same objective.
Meredith Courtemanche, managing editor
For a summary of TFI's report on ODM/EMS business through 2011, see TFI Predicts About 11% Moderate Growth for EMS/ODM. For the business aspects of Nam Tai's regrouping plans, see Nam Tai to Restructure.