When we look at the final 2011 revenue numbers that have come in for our industry, there are a few striking data points that warrant a bit of mentioning; most notable among these is the top-heavy nature of the foundry and the electronics manufacturing services (EMS) providers. One reminder from these data are that despite the intense proliferation of semiconductors into everyday business and personal life globally, the major companies along the semiconductor and electronics industry supply chain remain a rather small number.
Considering the foundry sector, it is worth noting, that the recent Gartner semiconductor manufacturing report, summarized here by EETimes and here by ElectronicsWeekly, who points out that "foundry represents a tenth of the semiconductor industry [revenues …]." According to the same ElectronicsWeekly summary, of the roughly US $300 billion in semiconductor revenues in 2011, "foundry revenues grew 5[.1]% to [US] $29.8bn […]." Almost half of that revenue share fell to one company, TSMC, and "the five biggest foundries have 80% of the market."
Those are striking revenue and market share numbers, to be sure, underscoring simultaneously that growth did occur during 2011, and that the oligopoly structure at the foundry level is likely to persist. Perhaps we could write off the persistent foundry structure to the extreme costs and therefore an expectation that the competitive landscape might not invite a larger set of companies. Regardless, there are questions around long-term growth, diversification, capacity, pricing, and related business situations when there are so few foundries to turn to, even though the entire industry relies on the output from these few companies.
When we consider the EMS sector, we find a similar top-heavy structure becoming entrenched. According to the latest research by Manufacturing Market Insider (MMI), Vol. 22, No. 3 (pp. 1-6), "combined sales of the MMI Top 50™ [largest EMS providers] […] for 2011 totaled [US] $213.4 billion. […] grow[ing] to huge proportions […]." While over the past five years, there has been on-again off-again discussion of the possible merger of EMS and original design manufacturers (ODMs), or even the possibility of ODMs taking over the role(s) of many EMS providers, those discussions have certainly been quelled with these latest data.
However, the latest MMI data reveal that nearly half of the 15.7% growth in 2011 for the global EMS sector was held by one company, Foxconn/Hon Hai, "without Hon Hai's contribution, aggregate growth for the other 49 [largest EMS] providers would have been 8.2%." (ibid., p. 1) If we couple these EMS revenue data with Gartner's data on leading purchasers of chips from earlier this year (as reported here by EETimes), the leading purchasers of chips also hold a significant share of the sector market place and therewith a significant percentage of revenue. Among those are the likes of Apple, Samsung Electronics and HP, the companies that supplied the most demanded devices (smartphones, tablet PCs, and solid-state drives, according to the article) and therefore hold the greatest market share. Interestingly, this group also happens to represent the companies that are able to command the best pricing and position with the leanding EMS and foundry companies, further tightening the relatively small network.
Another interesting data point along our industry's tight supply chain is the growth experienced among the semiconductor suppliers, notably Intel, Qualcomm and ON Semi, as discussed in this recent iSuppli report on the 2011 revenue and market share standings. Again, we see the top 10 semiconductor suppliers representing half of the 2011 revenue growth. However, that does not mean that there was no significant, widespread growth to be had. Rather, delving into the data, we note that the variability of revenue growth for semiconductor suppliers was diverse and not limited by being among the largest companies. Variables such as foreign exchange rates, impact of the Japanese and/or Thailand natural disasters, as well as device and market focus directly impacted growth. One of the industry giants, Intel, did experienced one of its strongest growth years, according to iSuppli, pushing the company to its highest market share since 2001, of 15.6%.
These connections among the leading global semiconductor and electronics companies are no great mystery, nor should they be. What makes these data interesting are firstly the underscoring of the impact of supply chains on growth and market share, and secondly that the amount of growth (sector and revenue), is actually held by a surprisingly small fraction of the industry. Beyond the important reminder that 2011 was a positive growth cycle for our industry, recognizing the impact that supply chains connections have on supporting growth, pricing, and access along the chain is equally important.
Today's successful supply chain strategies include diversified sourcing partners who can provide the necessary parts and services to complement existing partnerships. The massive supply chain disruptions of 2011 had negative impact on many of the above supply chain connections, but those companies who were able to succeed, did so because of their sourcing strategies and ability to mobilize agile risk management solutions through diversification (read more on this topic from Smith's VP of Corporate Strategy, Dustin Ford, in this EBN article).
To learn more about some of the latest changes in our industry's supply chain strategies and the latest service demands of network partners, see Smith's recent MarketWatch Quarterly, sent to subscribers (free subscription here) last week and available here mid-April.