Mike Buetow

CAVEAT LECTOR

Man vs. machine.
by Mike Buetow
Peter Bigelow

ROI

No flex in circuits industry.
by Peter Bigelow
Susan Mucha

FOCUS ON BUSINESS

Getting the deal on paper.
by Susan Mucha
Noah Fenley

DESIGNER'S NOTEBOOK

Changing copper weight.
by Noah Fenley
Mike Buetow

CAVEAT LECTOR

Broken eggs.
by Mike Buetow
Peter Bigelow

ROI

The future in 3-D.
by Peter Bigelow
E Jan Vardaman

ON THE FOREFRONT

Organic substrates.
by E. Jan Vardaman
Pi Zhang

DESIGNER'S NOTEBOOK

SI with HDI.
by Pi Zhang
 Mark Finstad  

THE FLEXPERTS

Designing for flex.
by Mark Finstad
 Karl Seelig  

TECH TIPS

Flux standard in flux.
by Karl Seelig and Tim O’Neill

Why DIY machines will ring up big sales for some EMS/ODMs.

Self-service intelligent kiosks have evolved over the years, gaining increased functionality, yet have their origins in traditional food and beverage vending machines. These machines were originally electromechanical in design, but now are largely electronic today, with multiple embedded modules and communications functions integrated into the design.

The word “kiosk” is today used to describe a variety of user-interactive dispensing systems that can include ATMs (automated teller machines), POS (point of sale) devices, gaming/arcade equipment, and a variety of self-service systems within the transportation, retail and product goods industries. Each year, these kiosks become more technically advanced in terms of the kinds of merchandise they can handle, the variety of payment options they can conduct, and the new ways of communication interaction (e.g., video, Wi-Fi and near field communications).

In most cases, these features are application-specific to each market. For example, in the ATM market there is need for counterfeit recognition, bill paying, and in some situations, interactive video. In the gaming industry, there is demand for new forms of gambling/betting online for cash verification and interactive forms of communications for play. Self-service kiosks can now distribute a wide variety of merchandise, including food, beverages, DVDs, batteries, and many kinds of consumable goods.

In all cases, the functioning hardware needs to securely dispense, transact and sometimes collect products, all on a standalone, self-maintaining, self-diagnosing basis. This requires sophisticated product design skills, as well as excellence in manufacturing.

Based on the number of suppliers within each product segment, the market for the assembly of complex kiosk systems, New Venture Research estimates the total market assembly cost was approximately $21 billion in 2013 (Figure 1). EMS subcontractors account for approximately 21% of all product builds, mostly in the gaming and self-service kiosk market segments. OEMs account for the remaining assembly being done in-house, as there are high barriers to entry that pertain to industry hardware functionality and legacy systems, which for the foreseeable future will remain in the control of the OEM (Table 1).


Figure 1. Complex kiosk market assembly by product application ($21 billion), 2013.


Table 1. Total Assembly COGS for Complex Kiosk Systems by Product and Supplier, 2013

A number of EMS suppliers serve this marketplace on a subcontract basis. The majority of manufacturing performed today is PCB assembly, yet firms such as Flextronics and others offer full-system assembly, including reference designs, IP technology, and systems integration and product differentiation. Vice president Dave Gonsiorowski claims Flextronics has completed over 200 projects in the complex kiosk market segment. To this end, the company has received accolades from Redbox Automated Retail (a division of Outerwall that makes DVD rental kiosks), which has deployed a reported 36,000 transaction stations. Concerning industry evolution, he remarks, “You’re seeing convergence for sure. Also, the equipment is getting smarter and is part of the ‘big data’ movement. These systems can generate an enormous amount of information. They can track any of the information that the customer is using from these systems. So telemetry, big data and smarter equipment and self-healing: these are all things that the equipment can do now. We’re finding that the shoppers want to shop their way, when they want it and where they want it. The retail marketplace has a number of these products, and they all operate and communicate with each other in many ways.”

Regarding industry supplier composition, Jeff Doerr, senior manager of business development at Flextronics, points out, “The industry is made up of a handful of large OEMs that specialize in niche markets with niche products. These firms are developing technologies for their own consumption. There are a number of smaller kiosk integrators with revenues ranging from $1 million to $50 million that tend to focus more on integration of existing technologies. Unlike OEMs, these companies typically outsource all manufacturing/painting, then bring components, enclosure, etc., in-house for assembly. Typical projects range from one to 200 units, often with some level of customization, but usually are not very complex. Our advantage is that we are a world leader in the design, manufacturing, service and logistics of these technologies. We get to leverage our experiences in all areas of design and manufacturing.”

Sinocan is an Asian OEM manufacturer positioning itself as an ODM of complex kiosk products. Similarly, Kontron (a designer and manufacturer of embedded printed circuit boards) has strategically partnered with Plexus to offer unique ODM/OEM services for complex kiosk solutions. Foxconn is reported to have an ODM design group (FoxKPC) focused on POS and ATM products. Jabil has considerable experience in ATM/POS card readers, cash dispensers, large-form kiosks, and multifunctional automation equipment. Benchmark Electronics also has its eye on this market through its joining of the Intel Systems Alliance group to develop its business in the field of embedded computing, as do Sanmina-SCI and Celestica.

Figure 2 summarizes the total assembly COGS for complex kiosk systems by geographic region in 2013. These figures were calculated by examining each company’s sales and manufacturing operations and making estimates of production by region. APAC (Asia/Pacific, Australia, China – includes India) accounts for the largest production base, followed by the Americas and EMEA (Europe, Middle East, Africa). While APAC leads in product assembly, the Americas accounted for more than half of all EMS production in 2013.


Figure 2. Total assembly COGS for complex kiosk systems by region ($21 billion), 2013.

ATMs. ATMs account for the most feature-rich, complex kiosk systems, as well as the most extensive installed base. As with most products, they can come in different configurations and cost, with bare bones models representing approximately $2,500 in assembly value and as high as $30,000 for high-end systems with a variety of features (counterfeit detection, cash recycling, video interface, multiple currencies, etc.). Lately, cheap Asian designs have been making their way into the market, offering opportunities for installations in new locations not previously available.

The internal bill counting and dispensing mechanisms are the critical features to the ATM, as cash must be recognized, verified, sorted and capable of being returned. State-of-the-art end-systems image each note (both sides) and can recognize and capture counterfeit bills. Prices for systems are largely determined by how many bills the ATM can manage, with low-end systems capable of managing 1,000 bills and high-end systems capable of managing up to 12,000 bills.

The leading ATM OEM companies include GRG Banking (China), Diebold, Fujitsu, Glory (Japan), Wincor-Nixdorf and NCR. Respondents interviewed indicated that the market was growing very strongly, at more than 10% a year, largely in developing economies where cash is king. Cashless solutions in the developed countries are an emerging market, but there are many countries such as Russia, India and China where cash is still the preferred payment option. In many cases, people are uncomfortable with cashless payment solutions, but may use an ATM kiosk to pay bills and obtain products or services. Asian suppliers dominate this TAM by more than half.

Bessam Estaitieh, director of marketing at Crane Payment Solutions, observes that the most promising markets are in emerging countries like India and China. “The options from the kiosk depend on the country you are looking at. For example, in India in suburbs or rural areas, it might not make much sense to deploy cashless options, so cash is still the preferred method of payment. Russia is a mature country when it comes to bill payment kiosks, so growth is more moderate there than other countries. China is growing strong, and India has over a billion people who are cash-oriented. Another variable is the model, where in Russia it is a multi-operator solution versus China, where it is a single operator solution. For example, there are two wireless providers in China, the largest one with 750 million-plus subscribers that can afford to deploy its own kiosks. The rest of the world has smaller operators; it becomes a business case decision based on maturity and experience, in terms of single vs. multi-operator model. Each country is unique. You can’t paint the world with one brush; it depends on its history, government, and how capitalistic it is, so you have to develop a geographic approach.

“On the kiosk side, most of the market globally is in the emerging world. I cluster kiosks into four distinctive geographic areas. The most mature kiosk market is Russia, followed by China in terms of deployment size. The US is third, followed by RoW. The Russian culture is very much focused on cash and anonymity, and they prefer to use kiosks. They provide a good model for the rest of the world. For example, there is a kiosk OEM that provides the kiosk; then there is an operator that purchases the kiosk and runs it to enable payment for service from multiple providers. A popular application is to top off your cellphone or pay your utility bill and other things. Each cellphone company or utility doesn’t have to develop its own kiosk, which would not be cost-effective. It simply connects to a payment network, and the kiosk operator charges a per-transaction fee.”

Terra Nofsinger, AVP, merchant sales specialist for Bank of America, notes that the ATM selected by the merchant depends on how many notes the merchant wants to be able to transact. “If you think about an ATM dispensing 3000 notes a day, which may take two or three salaried tellers the same amount of time and work to do, it becomes a situation in which the ATM could have a payback of several months. It sounds bad to be replacing workers with machines, but in fact these ATMs are much more accurate and cost-effective when compared to human labor. They don’t take coffee breaks, and they work 24 hours a day.”

Gaming. Manufacturing equipment for gaming companies (those engaged in slot machine, arcade, and cash acquisition/exchange systems) is a vast industry that has been well-penetrated by EMS companies, and is still a growing market due to technology development. Electronic gambling in North America has matured (blackjack, poker, bingo, etc.), but in Asia (and Europe to a lesser degree), it is growing dramatically as the gambling market expands. In most cases, however, gamblers prefer interacting with live people than with machines in this region.

The gaming market is constrained in a similar way to the ATM market by people who prefer to transact exclusively in cash. Cashless solutions that involve credit/debit cards are still developing in the emerging economies, but gaming kiosks (frequently ATMs) that accept credit are becoming more common and trustworthy as the world evolves toward electronic systems. Solutions involving credit devices that exchange cash for winnings, or ticketing credits, are becoming increasingly commonplace, and market growth appears to be emerging principally in Asia, where the market is expanding so rapidly.

Outsourcing of gaming equipment assembly has been robust for many years in North America and Europe. Many of the contracts have gone to second and third tier EMS suppliers because of the complexity of the assembly requirements, which often involve a high degree of electromechanical production capabilities, but also because of the vertical niche nature of the industry. Often, large gambling companies prefer turnkey assembly capabilities of smaller and local suppliers that specialize in understanding the technical demands of federal and state entities for transparency and legality. As this varies considerably between country and state, compliance often becomes a deciding factor.

POS. Point of sale (POS) equipment normally includes a wide range of cash registers and check-out stations found in today’s retail outlets. A complex kiosk POS system can be seen in self-checkout stations at local grocery markets and, increasingly, at retail stores. Although vending machines might be considered in this category, we are avoiding this avenue because of the commodity-like nature of these systems.

NCR, Wincor-Nixdorf and Toshiba have long been leaders in POS equipment, and the development of complex kiosk POS solutions has naturally emerged from this expertise. The market naturally split between commodity cash register machines for retail and higher-end, networked systems for large-scale super-store operations that are more comprehensive in terms of features and reliability.

EMS assembly of complex POS kiosks has been constrained to date, as the manufacturing of these solutions involves the integration of numerous sub-systems, including barcode technology, cash handling equipment, credit/debit card transaction, display/audio technology, communications, and the weighing of purchased items. While these systems are becoming more commonplace, they are rarely turnkey in nature and thus require a considerable amount of customization and systems integration. NCR and Wincor-Nixdorf have been shown to be the most progressive by subcontracting PC board assembly where their systems are sold, and Flextronics has shown to be the primary supplier of customized solutions.

Randy Fox, vice president of currency handling and identity product solutions for Fujitsu’s cash management and recycling operations, offered several comments concerning the evolution of the industry. “People have been talking about cash going away for the last 30 years, but the simple fact is there is more cash in circulation today than ever before. We see the need for cash, and the need for cash handling, growing. There is certainly growth in first-world markets like the US for cash management. Cash is discreet, private and is not regulated, particularly in the second economies where you have a lot of immigrants who do not feel comfortable using credit instruments. We look at the market growing in terms of applications such as gaming and hospitality. Also retail and banking, but growing in markets where cashless hasn’t been used. All of the kiosk vendors are asking that question, but you have to understand that every market in every application is different.”

Parking/ticketing. Parking and ticketing kiosks are a vertical application because of the technology sophistication, which is of the order of an ATM. Yet these solutions must operate in harsh conditions and environments. Leading suppliers include Fujitsu, Ingersoll Rand, Amano and 3M.

Aaron Mills, a marketing executive at 3M, perceives the market in this way: “What we focus on today is primarily what is called off-street parking. So the market is split pretty much 50/50 with off-street parking and on-street parking. The on-street systems are getting more complex. The technology you’re seeing now – there is a box or kiosk that you go up and pay. There isn’t a parking meter anymore. There is just a number and a pay-and-display system. So it’s evolving, but we don’t make them. The on-street parking is almost totally owned by the cities.

“Off-street parking systems have a lot more advanced technology. It’s mainly garages, but there are also parking lots with a gate. There is also free parking that needs to be controlled. For example, in the hospital, there are doctors and nurses and people who need to park and gain access, so you scan your card and the gate will open. Sometimes, the hang-tag that you find at universities works by RFID. Most of what we do is on the revenue control side with paid parking.”

Industry averages show that a typical parking system in a garage consists of two lanes in and two lanes out. Some solutions are fully automated, while others decide
to use a cashier in the lane to accept payment. Equipment costs for an automated, two-in, two-out system range from $60,000 to $100,000, depending on system complexity.

Kiosks – retail/transportation. Retail and transportation kiosks are becoming increasingly common in stores, hotels, sports centers, hospitals, restaurants, courthouses, delis, museums, airports, subways and train stations. As such, they tend to be more application-specific, such as issuing a boarding pass at an airport and transacting a debit for the luggage fee. Because they frequently do not handle cash, these kiosks cost less and are less complex to build. A number of suppliers serve this market in all regions across the world. Leading suppliers include Fujitsu, GRG Banking, Wincor-Nixdorf, NCR and Triton.

Outsourcing of these so-called lightweight types of retail kiosks is becoming more common. While not commodity in nature, they can be assembled with standard components, including scanners, displays and printing technology, as opposed to a much more expensive and customized system.

Flextronics’ Gonsiorowski summarizes the market in this way: “Depending on the niche of this segment looked at, you will see different trends. Information kiosks tend to be commodity, as are digital signs, mobile devices and tablets. Established markets like ATMs and gas pumps tend to still be integrated in-house with the use of outsource providers offering components. Automated storefronts, on the other hand, tend to be custom. The brands are very interested in having the machines match their brands and deliver interactions consistent with their brands. They are very particular about how they interact with customers, and want the systems to be customized to the experience they want to deliver. We also see a trend where brand companies working with their creative agencies are coming up with new and innovative concepts for self-service. These companies are trending toward outsourced strategies.”

Kiosks – self-service. The most popular and fastest growing market for complex kiosk systems seems to be self-service solutions. Well-known products include DVD rentals (RedBox/Outerwall, Inc.), automobile rental stations (Hertz), and more recently battery purchasing/recycling (BETTERY – now discontinued), convenience products (Store24), bicycle rentals (B-Cycle), electrical recharging stations (Charge It Spot), and represent an attractive and sizable market segment with emerging companies that are brimming with ideas.

Outsourcing of assembly of self-service kiosks is more extensive than any other market segment. This is because the largest region for these systems is found in North America, where OEMs do not want to manufacture and need a good partner to assists their product launch. In some cases, the subcontractor is not an EMS company but an OEM/ODM with its own branded product and intellectual property that it wants to license. As such, this market is growing very rapidly in North America.

Demand for self-service kiosks appeals to retailers who are always looking for ways to boost sales and install offerings that appeal to customers that bring them back to the store. These systems are designed so that all communications are completely secure in terms of credit card transactions, inventory management and software updates, often handled wirelessly over a cellular network. Flextronics’ Gonsiorowski states, “There are still markets and good reasons for some solutions to be a mix of automation and people.”

“I believe what we have learned about self-service over the past 15 years is that the equipment can provide the consistent transactions and, in many cases, more information. There are still some products and services where human interaction is still very important. In these cases, we see a trend where the human is there to provide the human interaction, but the equipment is there to ensure the information and transactions are delivered consistently.”

Trying to decide on a make vs. buy business model, suppliers sometimes create a hybrid solution that involves standard components and modules such as displays and credit card transaction devices, with custom dispensers that accept and recycle products to returning customers. In these situations, there are companies that specialize in retail automation solutions that leverage many existing designs to avoid starting a project from scratch. The mix of original and reused technology is frequently 40:60 for existing vs. custom solutions.

Fujitsu’s Fox summarizes the state of the industry this way: “The componentry is getting more and more miniaturized, so we can get into new applications in which the price point is coming down. There is the advent of new, miniaturized, low-cost cash dispensing technologies. There certainly is growth in cashless payment, such things as mobile POS and electronic commerce. The pie overall is growing. All boats are being lifted because the pie is growing.”

Randall Sherman is president and principal analyst of New Venture Research Corp. (newventureresearch.com); This email address is being protected from spambots. You need JavaScript enabled to view it..

Page 2 of 101