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Ems Market

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The Worldwide Electronics Manufacturing Market
Presented by Randall Sherman

NEW VENTURE RESEARCH CORPORATION
A Market Research and Business Development Consultancy Nevada City, California

Who is New Venture Research?
Specialists in contract manufacturing and outsourcing management consulting services for more than 15 years Produce syndicated research on the EMS industry through Electronic Trend Publications that is the most widely quoted in the industry
- The Worldwide Contract Electronic Manufacturing Services Market - The Worldwide Electronics Assembly Market - Electronics Manufacturing in China - The Worldwide Original Design Manufacturing Market - The Worldwide Printed Electronics Market - Nanotechnology Markets and Trends - The Worldwide Solar Panel Assembly Market www.newventureresearch.com Page 2

The Worldwide Electronics Assembly Market Cost of Goods Sold, ($B)
Segment Computer Communications Consumer Industrial/Medical Transportation Total 2007 298.6 219.2 221.0 100.9 119.6 959.4 2012 408.3 305.3 375.0 136.4 160.9 1385.9 CAGR 6.5% 6.8% 11.2% 6.2% 6.1% 7.6%

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The Worldwide EMS Market by Geographic Region
2007 Rev. by Region North America - Mexico Europe - Eastern Europe Asia - China Rest of the World Total ($B) 47.9 13.4 40.4 12.6 149.8 62.0 9.3 247.3 2012 ($B) 69.0 33.1 60.1 33.3 328.8 156.5 14.8 472.7 CAGR 7.6% 19.8% 8.3% 21.4% 17.0% 20.4% 9.8% 13.8% 4 Page

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Worldwide EMS Direct Labor Statistics
Country Germany England USA Japan Ireland Spain Hungary Mexico Taiwan India China www.newventureresearch.com Hourly Rate ($) 10.67 9.03 8.85 8.23 7.70 6.12 3.25 2.55 2.58 1.25 1.12
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CM Industry - 1994-2004
EMS Revenue Grow th ($B)
140

120

100

80 EM S Growt h 60

40

20

199 4 199 5 19 96 1997 1998 1999 2000 2 001 200 2 2003 20 04

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CM Industry – 2005-2010
EMS Growth Estimate ($B)
350 300 250 200 150 100 50 2005 2006 2007 2008 2009 2010

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Leading CM Companies in Mexico, 2007
Benchmark Electronics – Guadalajara BenQ – Mexicali Celestica – Monterrey, Querretaro Elcoteq – Juarez, Monterrey Flextronics – Aguacalientes, Guadalajara Foxconn – Chihuahua Jabil – Chihuahua, Guadalajara, Reynosa (2) Plexus – Juarez Sanmina-SCI – Apadoca, El Salto, Guadalajara (2), Monterrey Solectron – Chihuahua, Guadalajara Venture – Tijuana www.newventureresearch.com Page 8

Leading CMs in Eastern Europe, 2007
Benchmark Electronics – Romania Celestica – Czech Republic, Romania Elcoteq – Estonia, Romania, Russia EPIQ – Bulgaria, Slovakia Flextronics – Czech Republic, Hungary (2), Romania, Ukraine Foxconn – Czech Republic (2), Hungary Jabil – Hungary, Poland (2), Ukraine NOTE – Lithuania, Poland Sanmina-SCI – Hungary SIIX – Slovakia Videoton – Bulgaria Zollner - Hungary www.newventureresearch.com Page 9

Leading CM Companies in China, 2007
Benchmark Electronics – Suzhou Celestica – Dongguan, Shanghai, Suzhou Elcoteq – Dongguan, Shenzhen, Beijing Flextronics – Changzhou, Dongguan, Doumen (2) Nanjing, Qingdao, Shajing, Shanghai (2), Shenzhen, Xixiang, Zhuhai Foxconn – Beijing, Chongchang, Dongguan, Jinchang, Kunshan, Shanghai, Shenzhen, Tianjin, Taiyuan, Yashou Jabil – Beijing, Huangpu, Nanjing, Shanghai (2), Shenzhen, Suzhou, Tianjin (2), Wuxi (2) Sanmina-SCI – Kunshan, Shenzhen, Suzhou, Wuxi USI – Shenzen, Shanghai Venture – Shanghai (2) www.newventureresearch.com Page 10

New Industry Player: ODMs
ODM - Original Design Manufacturer (also called an Contract Design Manufacturer – or CDM) is a Chinese/Taiwanese OEM offering ‘contract manufacturer’ (CM) services in a specific product area which other OEMs can private label. OEM Customer Dell/HP/IBM Ericsson/Sony Cisco Systems ElectroLux ODM Supplier Quanta Computer BenQ HuaWei Zhongyi End Product Notebooks Cell phones Low-end routers Light appliances
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Supplier Differences in Value-Add/Cost

Cost $ OEMs

CMs ODMs Development www.newventureresearch.com Page 12

Why OEM Customers Like ODMs
ODMs are low risk for OEMs because they no longer have to invest in design, materials or inventory ODM outsourcing is with an industry ‘expert’ in a specific product area—not just a generic CM firm ODMs are more attractive because they offer advanced designs, fresh IP and the ability to bring a new product to market quickly

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Why OEMs Dislike ODMs

A ODM partner may become an industry competitor after several years once they gain the product design knowledge Many Chinese companies have not standardized their business practices with regard to accounting and legal. Very difficult to pursue equitable solutions in courts Because of a tendency to accept unhealthy profit margins many ODMs are putting at risk their future survivability.

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ODM Market Forecast, 2005-2010
ODM Growth Forecast ($B)
120

100

80

60

40

20

2005 2006 2007 2008 2009 2010

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Chinese OEM/ODM Companies
Amoisonic Aucma Bird BOE Changbai Changhong Dalian Datang Desay Dongfeng Eastcom Founder Great Wall Gree Haier
Hisense Huaqiang Huawei Irico Jinling Kaifa Kejian Kelon Konka Langchao Legend Midea Panda Peacock Putian SED SEG Shanghai Bell Shangling Shinco Skyworth Soutec Start Computer SVA TCL Tiancai Tongfang Utstarcom Wandong Xiamen Zhonghuang ZTE Page 16

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Strengths of Manufacturing in Asia
• Cost Leader – 1/10 direct labor rate of USA – the lowest cost manufacturing region in the world • Quality – Not as high as OEMs would like (Six Sigma) but generally very good • Reliability – Most Chinese firms are viewed as reputable, with highly trained work forces. Stable wages, low inflation, good work ethic, high technical capability • Product Fit – High volume products that are price sensitive – computer motherboards, cell phones, low-end networking, consumer products www.newventureresearch.com Page 17

Strengths of Manufacturing in Mexico/Eastern Europe
• Cost Competitive– 1/5 direct labor rate of USA – the lowest cost manufacturing region in North America • Quality – Excellent, have fully embraced advanced manufacturing processes and systems– transparent to U.S/Europe. • Reliability – Politically more attractive with longer history of doing business with the U.S. NAFTA/EC Commission a positive. Good technical skills and infrastructure • Product Fit – Best suited for low-to-medium volume products of higher complexity and mix – appliances, automotive, industrial, medical www.newventureresearch.com Page 18

Weaknesses of Manufacturing in Asia
• Intellectual Property – there have been examples of Chinese firms are going to steal designs and products to make knock-offs for domestic markets • Capital – Chinese firms lack capital to invest in technology, equipment and advanced processes • Honesty – OEMs have some bad experiences with firms promising things (volumes, quality, on-time delivery, parts, etc.) that they cannot deliver • Government Red Tape – Customs, tariffs, inspectors can be a friend or enemy. Bribery is not an acceptable practice. There is favoritism to local firms and a weakness in the legal system. www.newventureresearch.com Page 19

Weaknesses of Manufacturing in Mexico/Eastern Europe
• Inflation – wages are subject to regular increases and many government imposed benefits • Lack of Government Policy – Electronics industry lacks many supporting government policies and tax incentives that China has to improve competitiveness • Competition – Could be more competitive and industry focused. No apparent national priority. Electronics industry was theirs to lose • Costs – Power, telecommunications, transportation, wages could be more efficient and competitive www.newventureresearch.com Page 20

Summary/Conclusion
- Market for EMS will remain expand vigorously – particularly in low-cost regions for next 5 years
- All regions are eager to find good and long-term partners – incentives make the difference - Competition will intensify among Chinese suppliers over time creating a ‘feeding frenzy’ and over capacity - Mexico may regain favored partner status if improvements are made and China stumbles in its offering. Eastern Europe makes steady progress. - Private ownership in socialist countries will grow over the next few years creating a more capitalistic society www.newventureresearch.com Page 21

Conclusion

“It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change.” Charles Darwin www.newventureresearch.com Page 22

NEW VENTURE RESEARCH CORPORATION
A Business Research and Development Consultancy Nevada City, California

www.newventureresearch.com

Page 23

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