Contract consumer electronics, injection molding, enclosure opportunities

By Staff

Unlike sheet metal and other housings used in electro-mechanical assembly box build for cloud servers and networking equipment — that then sits on a rack in some data center — form, fit and function are more important in consumer electronics such as smartphones, notebooks and tablets because the user is constantly in direct contact.

Electronics services provider Jabil was thinking of this when pushing to diversify its services in 2006 with its (generous offer) purchase of Taiwan Green Point.

This allowed Jabil to boast of a proprietary process allowing Jabil to produce very high-end plastic and metal moldings.

Jabil’s process allows mass production of finely polished moldings for enclosures for use by consumer electronics firms like Apple, HTC, Blackberry and Motorola.

The Company further established its presence in the enclosures portion of supply chain services with its 2013 acquisition of Nypro. (See: Top 10 EMS/ODM firms by revenue)

Electronics Supply Chain Services Matrix

Injection Molding, Enclosure EMS Supply Chain Services

Analysts behind a recent report at investment bank UBS state enclosures produced using computer numerical control machines (CNC) / extrusion (e.g., plastics injection molding) methods should continue to dominate the high-end smartphone segment, and are becoming an important feature for handset OEMs, along with processors, cameras, batteries…

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The die-casting method could still be used in mid-range smartphones. UBS expects metal enclosures to become the industry standard for mid-range to high-end smartphones, with handset OEMs using different production methods to fulfill various requirements at affordable costs.

Metal enclosures remain a key differentiation factor for notebooks and its estimated the total value of metal enclosures used in notebooks could increase 3% YoY in 2015. At the International Consumer Electronics Show, Dell announced a new notebook (XPS 13), with CNC-machined aluminum forming the exterior chassis. HP also announced new ZBooks, which are the industry’s thinnest and lightest workstation ultrabooks.

On the other hand, UBS writes, its expected the value of metal enclosures for tablets to decline, but only 1% YoY in 2015 after a 14% YoY decline in 2014E. Apple could be the major user of metal enclosures in tablets, while other OEMs are trying to lower Bill of Materials (BOM) costs.

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2015 Demand
Many in industry feel that with the number of CNC machines increasing in the industry, we’re on course for an over abundance. But UBS feels this is not the case and says it expects supply / demand balance in metal casing industry to remain tight but healthy in 2015, and think concerns about oversupply are unfounded.

Effective supply is determined using the value created by one CNC machine instead of the number of units produced per machine.

In doing so, UBS feels this value is a better reference because it takes the increasing complexity of enclosures and each company’s different situation into consideration. Based on this type of analysis and the CNC companies the bank follows its estimated the effective 2015 casing supply will meet only 87% of casing demand.

Additionally, the report claims average output per CNC machine is down today because of increasing complexity of casing structures and design, since average output per machine is related to the complexity of the casing design.

CNC machine cycle times are also likely to lengthen as both structure and design of enclosures become more complex.

Metal enclosures
Driven by high-end smartphones, UBS sees even stronger demand for metal enclosures in 2015 than in 2014, and estimates the value of the metal casing industry could rise 40% YoY after a 14% YoY increase in 2014E.

Smartphones will remain the major growth driver, with potential upside coming from Samsung and China handset OEMs.

Shipments of premium smartphones (over US$300) will grow -5%/+8% YoY in 2014/2015 and shipments of premium smartphones with metal enclosures will rise 32%/74% YoY in 2014/2015.

Its estimated metal casing penetration for premium smartphones could reach 55% / 88% in 2014/2015 with 2015 upside mainly from Samsung’s Galaxy S6 and China handset OEMs’ aggressive strategy to gain share in the Rmb2,000-3,000 smartphone market.

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The report also estimates a uni-body metal casing manufactured by extrusion/CNC costs phone companies around US$35 to $40 compared to US$20 to $25 for die-cast enclosures.

Demand for metal enclosures continues to grow

Forecast Demand Metal Enclosures

Increasing penetration in high-end smartphones

Increasing penetration in high-end smartphones

Numerical control machines (CNC) by owner, 2015E

Numerical control machines (CNC) by owner, 2015E

Contract electronics services
Despite higher fixed costs when offering CNC / plastics extrusion services in-house, vertically-integrated contract EMS and ODM companies have the benefits from capital costs amortization and customer diversification to help offset any mild downward trends in demand resulting in decreasing CNC / plastics extrusion machine uptimes.

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Forecasts for electronics services for consumer electronics follows.

WW Consumer Electronics Devices Segment Revenue Forecast, ($B), 2008-2019

Consumer Electronics EMS and ODM Forecast

Contract Electronics Consumer Electronics Devices 2014 – 2019 CAGR
EMS Sector 6 percent
ODM Sector 7 percent
Total 6 percent

Contract Electronics Consumer Electronics Devices 2014 Share
EMS Sector 72 percent
ODM Sector 28 percent

Contract Electronics Consumer Electronics Devices 2019 Share
EMS Sector 72 percent
ODM Sector 28 percent

EMS / ODM Opportunity
According to research firm IDC the mobile market is now favoring low- and mid-range smart phones.

With forecasts demand for tablets having fallen, consumer Internet of Things (IoT), especially connected or smart home applications and wearables could benefit the contract electronics market. This growing IoT market will disrupt traditional electronics supply or value chains.

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Also on the consumer segment horizon, IDC sees another round of TV outsourcing and increased demand from television producers with the 4K transition to benefit the contract electronics market. Electronics providers able offer a fuller spectrum of supply chain services are often better positioned when OEM decision makers are reducing their electronics services ‘short list’ options to just one provider.

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