The HMLV market is fragmented and primarily catered by mid-size Electronic Manufacturer Services (EMS) whereas the LMHV market is primarily catered by large tier-1 EMS. The supplier landscape will change as tier-1 EMS players increase their focus towards the HMLV market. This will escalate the competition and enable buyers to consolidate their spend.

1. Tier-1 EMS Shifting to the HMLV Market Segment | June | 2013
Abstract:
The Electronic Manufacturing Service (EMS) Industry
comprises two categories: HMLV (High Mix Low Volume)
and LMHV (Low Mix High Volume).
The HMLV market is fragmented and primarily catered by
mid-size Electronic Manufacturer Services (EMS) whereas
the LMHV market is primarily catered by large tier-1 EMS.
The supplier landscape will change as tier-1 EMS players
increase their focus towards the HMLV market. This will
escalate the competition and enable buyers to consolidate
their spend.
Tier-1 EMS Shifting to the HMLV
Market Segment
Copyright © Beroe Inc., 2013. All Rights Reserved
Author
Ravi Shankar Singh | Research Analyst

2. c
Introduction
The HMLV market segments (Industrial, Medical, Aerospace & Defense) have been primarily been
catered by Mid-Size EMS players (with 55%of revenue coming from HMLV segment). The LMHV
market segment (Computers and Peripherals, Consumer Device, Telecommunication, Storage
devices) is predominantly catered by large size tier-1 EMS.
In the HMLV/LMHV, mix symbolizes the complexity or the customization of the product and volume
means the number of units manufactured.
"Tier-1 EMS players are increasing their focus towards HMLV market segment as it is growing
at approximately 50% faster rate than LMHV market”
Mitigating Risk: In a dynamic EMS industry, mitigating risk is necessary as the competition in the
LMHV EMS industry is increasing is increasing as the product life cycle matures which is resulting in
lower profits.
Tier-1 EMS depends on a limited number of large customer comprising a significant portion of their
revenue. For Jabil Circuit and Flextronics, their five largest customers account for close to 50% of the
net revenue thus the loss of a big client can result in loss in profits and EPS. Adding focus toward the
HMLV segment will help mitigate and/or reduce risk.
EMS Classification
based on Revenue
● Tier-1 (> $2 Billion,
large EMS players)
● Tier 2 ($ 500M to
$ 2 B, Mid-size)
● Tier 3 ($ 100M to
$500M, Mid-size)
● Tier 4 (Less than
$ 100M, Small)
Why are Tier-1 EMS shifting their focus?

3. Competitive Advantage: Mid-Size EMS players have regional presence with no end-to-end
solutions for the buyers and their procurement model is transactional which acts as a bottleneck.
Tier-1 EMS players have a global presence with a wide product portfolio and end-to-end solution
moreover they have centralized procurement which helps them to procure in bulk thus passing on
the benefits to the buyer giving tier-1 EMS players a competitive advantage. Global presence of tier-
1 EMS players makes it viable to manufacture HMLV products in the regions having high labour rates
as the HMLV manufacturing is labour intensive
Profit Margins: Tier-1 EMS players are motivated to move towards HMLV segment as they earn 45-
50% more profit margin as compared to LMHV segments as these are more customized products
thus supplier have more negotiation power.
“HMLV offers higher margins for smaller quantities, but the challenge is in adapting
the framework to meet the customer's expectations, rather than the EMS's needs.
Shareholders demand continued EPS growth; HMLV offers an opportunity to grow
EPS. High velocity clients are by their nature very volatile so HMLV helps spread risk”
-Director Business Development, Tier-1 EMS

4. Motivation Factors
 Profit Margins
 Growth rate in
HMLV market
 Risk Mitigation
 High labour rates in
Developed
countries
LMHV Market HMLV Market
Introduction
Few
Competitors in
the industry
Early
Adopters of
the product
Growth
● Entry of more
competitors and market
share cannibalization
● Products and services
have less differentiation
Increase in demand
from end consumer
market
Maturity
Price competition and
acquisition
The selection for product/services
becomes more niche and very
selective by end-users
Phase
Competition
End-use
Decline
The market is
highly
competitive and
is difficult to gain
market share
thus the exit of
some
competitors
Decline in usage
of product
Time
“HMLV is viewed as a potentially higher margin activity, however it comes at a
cost, for example the additional accreditations, facilities, skill levels add to
overhead”
-Aerospace & Defense Director, Tier-1 EMS
LMHV market is at the peak of its maturity
stage and has low growth rate. This lag
between the two markets segments makes
the HMLV market attractive for tier-1 EMS

5. Tier-1 EMS players like Flextronics, Celestica, and Jabil Circuits are shifting their focus from the
LMHV market towards HMLV market.
Tier-1 EMS
Growth in HMLV
segment from
2009-2011
Strategic moves to focus on HMLV market in 2012
Jabil Circuits 40%
Jabil continues to focus on under-penetrated, rapidly growing areas like the
industrial, medical, defense and aerospace verticals. Customer engagements
in these sectors tend to be much deeper with longer product life-cycles and
increased opportunity for cross-selling services.
Flextronics 25%
1) In 2012, Flextronics acquired Stellar Microelectronics. This acquisition
underscores Flextronics' strategic commitment to expand their service
offering in the aerospace, defense and medical markets.
2) Flextronics expanded its Romanian medical operation in November 2011.
Celestica 23%
Celestica acquired D&H Company in 2012. This acquisition supports
Celestica’s strategy to grow and diversify its revenue base in the Industrial,
Aerospace and Defense, Healthcare end markets.
12%
88%
Tier-1 EMS Player 2012E
Focus on HMLV
segment
Focus on LMHV
segment
18%-20%
80%-82%
Tier-1 EMS Player 2014 (F)
Focus on HMLV
segment
Focus on LMHV
segment
Industry Shift- Who is Moving?
Source: IDC, Annual Report Source: IDC, Annual Report

6. Buyers face challenges
while engaging with mid-
size EMS players as they
have, poor supply chain
visibility, lack of
recognition and goodwill,
limited financial strength.
 For buyers like medical device manufacturers it is necessary to get the right fit supplier as the
products required are highly customized and critical involving human interface.
 Buyers face challenges in identifying the right supplier in the HMLV market as it is highly
fragmented. Consolidating their spend with few suppliers is difficult as these EMS players do
not have a wide product portfolio.
 The shift of tier-1 EMS players will facilitate buyers like medical device manufacturers to
centralize and consolidate their spend by having a complete end-to-end solution.
HMLV Buyer Current Scenario (2012) Future Scenario (2014)
Who controls the
market?
Mid-Size EMS players Large Tier-1 EMS players
Spend Consolidation
It is difficult as buyers need to engage with many
suppliers to procure product.
Buyer will engage with one supplier across
all regions having wide product portfolio.
Supply chain visibility Low High
Relationship between
buyer and supplier
Short-term relationships as mid-size EMS players
are not strategically aligned to buyers need.
Long-term relationships as tier-1 EMS
players prefer strategic partnership.
End-to-End solution Difficult to get due to narrow product portfolio.
Tier-1 EMS players have wide product
portfolio.
“Customers may wish to move away from having a large number of smaller EMS
suppliers, to consolidating spend with fewer suppliers to gain better
advantage/leverage. But, Tier-1 EMS are also astute, they are also looking to have a
critical mass of important customers, ones who are looking for a partnership
arrangement, preferably long term, ability to grow in terms of value and able to
achieve a level of spend aligned with the EMS's strategy.”
–Director, Tier-1 EMS
Impact on the Buyer
Conclusion

7. Metadata
Industry to be impacted
Pharmaceutical Food, Beverage & Tobacco Aerospace and Defense Chemicals
Oil & Gas
Medical Devices
Manufacturers
Bank & Financial Services Hi-tech
Domain to be impacted
Medical Devices Fleet Management Travel and MICE IT and Telecom
Software & Hardware Management Consulting HR Services Legal
Focus Area
Sourcing Opportunity Supplier Intelligence Technology Substitute Opportunity
Supply Chain Risk Input Cost Price Outlook Sustainability
Keywords Used
Electronic Manufacturing Services (EMS)
High Mix Low Volume (HMLV)
Low Mix High Volume (LMHV)
References
http://www.ventureoutsource.com.
http://www.prlog.org/11787470-electronics-manufacturing-services-industry-to-grow-125-to-2015-says-report.html
investors.flextronics.com/phoenix.zhtml?c=98555...reportsannual
www.celestica.com
http://jbl.client.shareholder.com/annuals.cfm
insidechina.onehotspots.com/flextronics-acquisition-of-motorola-factory-squeezed-into-the-andrews-camp/8599
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