Charlie Barnhart & Associates LLC Insights into the world of global electronics manufacturing

Transcription

1 Charlie Barnhart & Associates LLC Insights into the world of global electronics manufacturing Leading Indicators Latency Factors Global Cost of Labor Corporate Costs by EMS Type Margin Expectations by Volume/Sector Hysteretic Factors Geographic Pacing Sector Pacing Capacity Utilization by Geography Solution Cycle by EMS Type Probability Factors Risk Constants by Geography Closing Comments Glossary of Terms Note: Data from charts marked with (ONS Data Element) must be applied per the methodologies of the Outsourcing Navigator Series.

2 Latency Factors Consequences that have yet to be fully actualized Element) Fully Burdened Cost of Labor (per Direct Labor hour) Geography PCBA BOX Average Average Comments USA $37.96 $28.18 Canada $49.12 $36.84 Mexico $10.63 $7.14 Guadalajara & Monterrey S. America $26.45 $19.84 Brazil only (ONS Data UK $ $79.92 Very limited data W. Europe $89.37 $64.09 Ireland and Nordic S. Europe $79.65 $57.14 France, Spain, Italy E. Europe non $26.13 $20.23 Hungry, Poland and Chez. Republic E. Europe $47.30 $32.95 Japan $56.72 $43.24 China $10.15 $7.25 Multi-national in China, no data on Chinese National SE Asia $18.12 $14.70 Malaysia & Thailand Vietnam $8.75 $4.80 Very limited data Singapore $25.15 $17.61 Very limited data Australia $46.50 $34.87 Middle East $35.97 $26.98 Israel only India $9.21 $5.89 Notes: 1. The cost of labor within any geography varies as; different skill level workers are paid differing amounts per hour (an example being the pay rates of assembly workers vs. test operators), some activities are charged at higher or lower rates as the level of OH they require maybe different than is typical for other activities within the same operation (an example being New Product Introduction vs. Volume Production), and even within a single geography costs can vary between localities because of regional differences (an example being the differences between the Silicon Valley of California and the Southern States of the USA.) Global Costs/Projected Q4CY2009: The underlying burdened cost of labor for electronics manufacturing services was basically unchanged in July/Aug net of currency translations. Again, net of a significant reversal in currency translation against the USD$; the burdened cost of labor for electronics manufacturing services in Q4CY09 are expected to be: flat to very slightly lower in Mexico; marginally higher in Eastern Europe, Japan and China; and flat in the balance of the reported global geographies.

3 Average Corporate Costs by EMS Type Corporate Costs Q1CY09 Q2CY09 Q3CY09 Q4CY09 CM 4.85% 4.90% 4.90% ODM 4.95% 5.00% 5.00% JDM 6.25% 6.25% 6.20% OEM to OEM 8.25% 8.50% 8.85% China National 4.50% 4.65% 4.65% Notes: 1. Expressed as a percentage adder to COGS as applied in the GPM of the ONS. 2. Includes items such as, but not exclusively: Corporate Admin. (Finance, Legal, HR, etc.), Sales & Marketing, Executive Management, Information Systems/Technology, Research & Development, Interest (i.e. Cost of money), Taxes (non-income), Licenses, Fee, etc. Average EMS Margin Expectations by Volume/Industrial Sector (000,000) $USD < B >1B Computing Communications Consumer Industrial Medical Mil/Aero Automotive Notes: 1. Table updated to reflect the PROJECTED margin expectation in Q4CY In larger relationships CMs & ODMs will sometimes select a Mark-up based on their average annual revenue with the OEM, especially when that number is significantly larger than that of the Total Value of the Project they are quoting. 3. The values listed are applied as in the Global Pricing Methodology of the Outsourcing Navigator Series via the 1-Mark-up% method (i.e =.6) which is the denominator in the formula of (COGS + Corporate Costs)/Mark-up = Selling Price. Observations on Margin Expectations: Margins in all sectors are expected to remain relatively constant in Q4CY2009 as backlogs and book-to-bill ratios stabilize. Historically, during times of flat to falling demand in the EMS industry, average margin expectation tends to be flat to very slightly down at the higher levels (i.e. $100M and above, as business at this level is extremely competitive at all times), down in the mid-range (i.e. >5M$ <100M$ as Tier I & II & III EMS aggressively pursue these opportunities to back-fill their factories) and flat to up slightly on the smallest projects (i.e. <$1M, as Tier IV EMS who require higher margins to be profitable become the primary solution for most of these opportunities).

4 Hysteretic Factors Consequences related to historical patterns Geographic Pacing Ratio/CY2009 (for CM & ODM) This ratio compares current capacity to the level of interest in using that geography. In other words, is the level of capacity keeping pace with the requirements? Geography USA /Canada Mexico South America Western Europe Southern Europe Eastern Europe E. Europe non SE Asia China Vietnam Singapore Australia Middle East India Note: 1= Balance, <1=Shortfall, >1 = Excess. Sector Pacing Ratio/CY2009 This ratio compares the EMS industry s focus to projected TAM growth in a market sector. In other words, is the level of EMS interest in a sector compliant with that sector s projected growth or is a restructuring of market share underway. CM by Sector Computing Communications Consumer Industrial Medical Mil/Aero Automotive ODM by Sector Computing Communications Consumer Industrial Medical Mil/Aero Automotive Note: 1= Balance, <1 Lower Priority, >1 = Pursuing.

5 Capacity Utilization by Geography/CY2009 (for CM & ODM) This metric compares EMS revenue to scale of geographic foot-print at a baseline of $1M USD/annum per 1K Sq. Ft. for PCBA manufacturing. In other words, if the geography is known to have 1K Sq. Ft. of capacity and is producing $1M USD/annum of revenue this geography would have a capacity utilization of 100% for purposes of this metric. Capacity utilization below 75% means resources maybe underutilized and over 125% resources maybe in limited supply. Geography USA /Canada 60% 50% <50% <50% Mexico 80% ~75% ~70% 70% South America TBD TBD ~80 75% Western Europe <40% <30% <30% <30% Southern Europe <40% <30% <30% <30% E. Europe 70% <70% 75% 60% E. Europe non 120% <90% 85% 80% SE Asia 70% ~70% 65% 65% China 110% 100% 90% 85% Vietnam <60% <50% <50% <50% Singapore <40% <30% <30% <30% Australia 60% 60% 60% <60% Middle East 100% 100% ~90% ~90% India 105% 110% 100% ~90% Note: None Solution Cycle by EMS Type/CY2009 This metric is current industry average lead-time, measured in calendar days from order release (with prior forecast) to FOB suppliers dock. CM USA/Canada Mexico E. Europe SE Asia China India > ODM Mexico E. Europe SE Asia China India > Note: In the above table Hon Hai/Foxconn is included as an ODM Capacity & Lead-times/Projected Q4CY2009: Lead-times remain relatively flat to slightly down and are expected to improve slightly over the balance of the second half of CY09 as demand is expected to remain soft as a result of the global economic situation.

6 Probability Factors Consequences that May Result Risk Constants by Geography Geography Old New Δ USA Canada Mexico Brazil UK & W. Europe E. Europe E. Europe non Malaysia Thailand China Singapore India Israel Australia Note: these factors are specific to the GO Tool but can be used in any risk algorithm. If you use neither the GO Tool nor your own risk model you can still use the Geographic Constants by proportional comparison, i.e. a solution in China at.59 is over twice as likely to incur problems as the same solution in Mexico at.25 LEADING INDICATORS What every OEM and EMS supplier needs to know about the global electronics manufacturing industry! charlie@charliebarnhart.com None of the material contained in the LEADING INDICATORS report may be reproduced or republished without the prior written permission of Charlie Barnhart & Associates LLC. In preparing this information Charlie Barnhart & Associates LLC used its best efforts to ensure accuracy. The material in the Leading Indicator report is presented as-is and Charlie Barnhart & Associates LLC, and its Principals, make no warranty, nor assume any liability for its contents.

7 Glossary of Terms Box Build = Final System and/or Higher Level Module Assembly CBA = Charlie Barnhart & Associates LLC CM = Contract Manufacturer (a type of EMS provider) CR (Core) = Core inter-banking interest rate Corporate Costs = Element of the GPM that includes non-cogs costs DL = Direct Labor (sometimes referred to as touch or value-add labor) Denominator = Bottom half of a fraction EMS = Electronic Manufacturing Services (includes, CM, ODM & JDM) EMS Pro Workshop = An intensive multiday, highly customized on-site training curriculum on the Global EMS Industry created and taught by Charlie Barnhart & Associates LLC to the industry s most knowledgeable users of Outsourcing Services. Prior training in all ONS methodologies is a minimum prerequisite for this Workshop. FOB = Free on Board GDP = Gross domestic product Global Outsourcing (GO) Tool = Element of the ONS that provides the data, techniques and formulation for OEM s to estimate, monetize and mitigate the risks associated with their global outsourcing initiatives. Global Pricing Methodology (GPM) = Element of the ONS that provides the data, techniques and formulation to estimate and analyze EMS prices on a global basis. INDICATES ONS DATA ELEMENT IL = Indirect labor (sometimes referred to as supervisory or support labor) JDM = Joint Design Manufacturer (a type of EMS provider) Mark-up = Element of the GPM that is added to cost to formulate price Numerator = Top half of a fraction OH = Overhead (the fixed and variable costs that are added as a burden to DL) ODM = Original Design Manufacturer (a type of EMS provider) OEM = Original Equipment Manufacturer PCBA = Printed Circuit Board Assembly PPP = Purchasing power parity, a criterion for an appropriate exchange rate between currencies. It is a rate such that a representative basket of goods in country A costs the same as in country B if the currencies are exchanged at that rate. Outsourcing Navigator Series (ONS) = A collection of empirical data, insights, tools, techniques and methodologies created and taught by Charlie Barnhart & Associates LLC to the users and providers of Outsourcing Services. ROW = Rest of World TAM = Total Available Market Total Cost of Ownership Module = Element of the ONS that provides the data, techniques and formulation for OEM s to benchmark, estimate and optimize their internal spend in support of their global outsourcing initiatives. USD$ = United States dollar YOY = Year on Year