Asian industrial electronic ODMs poised to capture IoT computing market

By Staff

There are a wide range of end market sub-segments and uses in the industrial electronics PC marketplace with no distinguishable single use dominating according to a report by investment bank UBS. In the report, the bank believes the largest sub-segments are building controls (lighting and building automation) and factory automation, including equipment controllers and motor drivers. Payment systems and transportation are also seen as significant markets.

TAM of industrial PC opportunity 2013

Primary Industrial Electronics Computing TAM 2013


Primary product / service focus areas
The three contribution areas, together comprised of types of services and products, the industrial PC vendors offer include:

Embedded printed circuit board (PCB) suppliers provide main or motherboards and/or modules, daughter, granddaughter cards designed to carry out specific functions

Systems integrators / suppliers assemble embedded PCBs with power supplies, enclosures or casings and other peripherals into fully integrated electro-mechanical assembly systems such as industrial servers, workstations and panel PCs.

Solution providers offer solutions by marrying software and electronics hardware for identified use cases. Think: automated teller machines (ATM) and computer telephony integration.

In its report, UBS believes Asian suppliers, especially Taiwanese vendors, focus primarily on embedded PCBs and systems and electro-mechanical assemblies.

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High gross margins
Asian industrial PC vendors enjoy gross margins that range from 20 percent to 50 percent with aggregate industry operating margin ranging from 12 percent to 15 percent between 2009 and Q314.

Probably not surprising to most reading this, the margins noted above are considerably higher than Asian contract EMS providers and electronics ODM companies as well as many Asian IT and consumer electronics OEM brands.

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The UBS report states the high margins for industrial PC vendors is due to this segment’s customers valuing product reliability over pricing, the ability to customize products and projects, and long product life cycles.

Factory automation no longer on distant horizon
By now most electronics manufacturing industry COOs have read about Foxconn’s push to automate factory activities using robotics and other forms of automation.

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While the percent manufacturing labor for electronics products relative to materials cost of good sold (MCOGs) is not significant in most parts of Asia compared to higher cost manufacturing regions, minimizing rising labor costs in manufacturing economies like China has been a key driver of factory automation.

The move toward automation is also driven by the need to increase factory efficiencies to directly and positively affect company P&Ls and this is becoming the topic of the day for discussion in many EMS executive offices. Below is IDC’s worldwide forecast for industrial electronics for EMS and ODM.

Worldwide Industrial Segment Revenue Forecast, ($B), 2008-2019

Worldwide Industrial Electronics Segment Revenue Forecast, ($B), 2008-2019

Contract Electronics Industrial Electronics Sector CAGR 2014 – 2019
EMS Sector 8%
ODM Sector 9%
Total 8%

Industrial Electronics 2014 Share
EMS Sector 93%
ODM Sector 7%

Industrial Electronics 2019 Share
EMS Sector 93%
ODM Sector 7%

In relation to industrial electronics, factory automation and industrial controls are used for automatic factory monitoring and controlling operations and processes.

Robotics is a popular topic of discussion among technology manufacturing companies in Asia such as Foxconn, and both robotics vendors and users have been pouring resources into developing specialized robotics for technology manufacturing.

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Both ODM and EMS business models alike could find their top line growing offering services in the industrial electronics sector by offering services to (or product) defined by computer or computer components embedded/installed into electro-mechanical systems and peripherals that help factory worker monitor and control the functions of key devices and equipment.

According to IHS Technology, the value of global industrial automation equipment could grow from US$185 billion (20140 to US$225 billion by 2017, posting a 7% CAGR over this period.

UBS believes the growth of factory automation in light manufacturing segments such as electronics lags heavy industries such as automobile manufacturing and, that the growth for the electronics manufacturing sector will be faster due to its lower base.

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Every OEM wants to reduce the cost for his manufacturing, regardless whether he is manufacturing in house or is paying EMS or ODM companies to manufacture for him. The cost benefit of automation has finally become attractive enough for electronics manufacturing providers (EMS / ODM) to consider implementing in their production lines.

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