Who saw this coming?
Nam Tai in late January announced it would exit the electronics manufacturing services business following the wind down of orders for LCMs at its Shenzhen facility.
If you don’t know Nam Tai – and many readers won’t – this might not seem like a big deal. And on its face, it isn’t. Contract assemblers go out of business all the time, more than two dozen last year alone, according to our Directory of EMS Companies.
But no one has ever whipsawed like Nam Tai.
Just look at the revenue trajectory: $623 million in 2008, $408 million in 2009, $534 million in 2010, $602 million in 2011. Even for mid-tier EMS firms, that’s a bouncy road. But wait, in 2012, Nam Tai jumped to $1.15 billion. That was enough to push them into the Top 10 among the pure-play EMS companies.
And in 2013, the firm turned in a respectable $856 million in sales. For its December period, it reported net income of $9.2 million on sales of nearly $235 million. Nam Tai generated enough revenue in that single period to make the Circuits Assembly Top 50 for the entire year.
And yet, come April, the company will cease to exist as a manufacturing entity. Instead, it is becoming a landlord, selling its ample acreage in Wuxi and converting its properties in Shenzhen into high-end condos.
Even for the cyclical, take-no-prisoners nature of electronics manufacturing, this was brutal.
In the annals of the EMS industry, only Elcoteq’s rise and fall compares, and even then it was a slower process. (Once a top 5 EMS company, the Finnish assembler rode Nokia to $6 billion in sales in 2006, only to plunge when the business went elsewhere. Elcoteq’s last year in business was 2012.)
Nam Tai bet heavily on liquid crystal modules used in tablets and smartphone displays. In the end, it fell victim to an end-customer’s whims. Nam Tai has not disclosed the party responsible for its death blow, but many observers have traced it back to Japan Display, a consortium of Hitachi, Sony and Toshiba whose major customer is Apple.
Nam Tai’s exit will have a ripple effect. Consumer electronics are not a zero-sum market, but someone (Jabil, likely) has benefited. And all the SMT lines that filled Nam Tai’s 1.3 million sq. ft. of plant space will be dumped on the China market.
It’s one reason you see so few EMS companies today putting all their eggs in a few baskets.
Investment opportunities? I spent the better part of one morning last month speaking with an advisor who was working with a client that held investments in a pair of EMS companies. I get these calls from time to time; they always seem to come in bunches. Invariably, the first statement I’m asked is, “Would you invest/continue to invest in this industry?” My answer is always the same: “No way.”
Now before you start questioning why someone who has spent 20 years making a living in the PCB industry could be so dismissive about it, hear me out.
Buying a PCB company of any sort – fabricator or assembler – today is a painfully slow process. There seems little consensus over the appropriate value, especially for those companies that have been consistent money-losers. If you are looking to maximize return on investment, this isn't the place. Margins are crazy low. As in any industry where there are literally thousands of competitors, true differentiation is almost impossible. We get all the respect of the corner hardware store. Successful companies are smart, relentless – and lucky. If you have second thoughts, it’s not right for you.
Starts and stops. It gives me great pleasure to introduce Robin Foran, our new Circuits Assembly Sales Director. I have known Robin for 15 years, having worked with her at our one-time parent company CMP, and her husband Bill was my predecessor at PC FAB. She will be – and is – a fabulous addition to our team!
I also want to wish the best to my longtime friend Matt Holzmann, the founder of Christopher Associates and, later, CGA Americas, who is leaving the industry he has spent his entire career in to work with those suffering from drug addiction in Southern California. It’s a noble pursuit by one of the hardest-working and most selfless persons I’ve ever had the pleasure of meeting.
P.S. Visit us this month at IPC Apex Expo, booth 2563. And be sure to stop by on March 25 at 10:30 a.m. for our annual SEA and NPI Awards, showcasing the best of the industry in service and new equipment and materials.