EMS Industry's Evolution, Part 1: From Prototyping to Partnership

Resistors used in thru hole PCBThe electronic manufacturing services (EMS) industry has experienced major growth and change since its beginnings in the early 1980s. EMS capabilities, services, geographical presence, and even market focus have evolved because of many different factors. This three-part series will cover the development of the EMS industry up until the dot.com bubble burst in 2000, then describe the current market landscape and business model, and finally discuss the future, including anticipated new services, partnership arrangements, and technologies.

In the Beginning: Pin-Thru-Hole Circuit Board Assembly
Although a number of large EMS companies currently provide diverse and sophisticated services to aerospace original equipment manufacturers (OEMs), this was not always the case. Initially, aerospace and defense companies used contract manufacturers (CMs), as EMS companies were called in the 1980s, to assemble prototype circuit boards. Space Craft Inc. is considered the first aerospace CM and boasted NASA among its customers.

The main reason circuit board designers needed to outsource this assembly work was simple: aerospace and defense factories were set up for production and did not have the space or flexibility to handle prototypes.

Back then, boards were assembled using the pin-thru-hole process patented by the U.S. firm Hazeltyne in 1961; parts with wire leads were inserted manually into holes drilled onto a bare board, according to the design schematics, and soldered in place. Contract manufacturers did not test the completed boards – that was done by the designers, who corrected logic mistakes during the debugging phase. Nor did CMs order the parts for the boards – that function was handled by the OEM's sizeable procurement organization. The CM simply provided the capability to read schematics, build the board, and turn the work around quickly. Fast turns were very important in those days; there were many contracts due to the military build-up going on under President Reagan, and it was a high-growth period for the aerospace and defense industries. Contract manufacturers seemed to be on every street corner, but most were very small companies concentrating on a few core skills.

Surface-Mount Technology Changes the CM Landscape
Surface mount solder sections, as shown on a computer card.In the early 1980s, technological innovation led to a major change in the CM sector. One of the drivers for surface-mount technology (SMT) for circuit boards originated in the space industry as a means to reduce the size and weight of electronics carried in spacecraft. SMT components are smaller and lighter than pin-thru-hole parts because they have smaller leads or no leads at all. As SMT became more robust and mature, its use increased in the defense and aerospace sectors, first in avionics and later in other systems.

The key reason why SMT changed the landscape for CMs was the need for large, expensive pick and place machines to accurately place components on the circuit boards. End-to-end manual assembly was no longer feasible, particularly as components became smaller and more numerous over time. Some CMs had a sufficient customer base to expand and invest in SMT machinery and highly skilled operators and technicians. However, only a few were able to make the transition, therefore SMT became a dividing line in the CM industry between traditional, manual assembly shops and technologically advanced companies that could handle the requirements of the latest aerospace electronics.

An early leader in SMT was Jabil Circuit, which identified the technology as the industry's future and invested in advanced automation and robotic assembly systems. Its early commitment to the technology, coupled with expertise in design and manufacturability, allowed the company to routinely execute SMT designs and manufacture with densities much higher than others in the industry could achieve. As a result, Jabil ultimately grew to be the largest EMS company in the United States, and the third largest in the world.

In addition to qualifying them for advanced aerospace prototyping work, investment in SMT lines put forward-thinking companies such as Jabil and SCI in a perfect position to capitalize on the emerging consumer electronics market.

Consumer Electronics Redefine the CM Scope
Integrated circuit board on PCBUp until this point, CMs in the aerospace and defense sectors had often been restricted to doing prototyping work because their customers – the OEMs – had been investing in manufacturing, procurement, and other infrastructure for decades and did not need additional services. They already had their own experts, equipment, and testing facilities – and they had the resources (and government contracts) to add state-of-the-art SMT technology to this portfolio. Further, these OEMs did not have full confidence in CMs to deliver the high quality and reliability needed for critical defense and aviation products. In addition, the majority of the OEMs were unionized, which further reduced their desire or ability to shift production outside their own factories.

In contrast, the new, start-up consumer electronics companies frequently had no interest in building manufacturing plants. Their strength lay in intellectual property from their designers and engineers. They recognized that they could use CMs to build circuit boards for their computers, cell phones, and other devices, avoiding the cost and time required to construct factories.

As the stage was set for CMs to expand their scope of services by manufacturing boards for consumer electronics OEMs, they benefited from a bit of good fortune – the emergence of companies that specialized in procuring electronic parts in small quantities. These firms, including DigiKey, Mouser, and Newark Electronics, were responding, in part, to strong consumer interest in home-built electronics, such as ham radios, stereo equipment, and even televisions. As a result, CMs now had a way to obtain the parts they needed themselves, instead of being given board components by the OEMs. This new channel was the first step away from the vertically-integrated model that the OEMs had built, and became the foundation for sophisticated supply chains offered by today's EMS companies.

One more piece fell into place when testing companies started to manufacture automated systems for testing circuit boards for accuracy – the so-called bed of nails. This electronic test fixture uses pins to make simultaneous contact with hundreds or thousands of test points on a printed circuit board. Previously, CMs found it almost impossible to test prototypes because the logic had to be debugged by the designers after assembly before a board would work properly. The new automated testing equipment, however, was able to evaluate the board without knowledge of the logic. A programmable logic controller (PLC) would verify the wiring, identify solder shorts, ensure contact with all components, etc.

EPROM chip used in thru hole PCBNow, with this testing equipment, CMs could procure parts, build boards, and test them, opening the door to high-volume manufacturing and associated services such as repairs and distribution. Together with spiking demand from consumer electronics and telecommunications companies during the dot.com era, and from automotive manufacturers, these turnkey services allowed CMs to grow their business and evolve into major corporations, now referred to as Tier 1 EMS providers. They included Jabil Circuit, Celestica, Flextronics, Plexus, and Sanmina-SCI.

During the 1990s, the EMS industry enjoyed a rapid rate of growth and global expansion. For example, according to the Institute for Interconnecting and Packaging Electronic Circuits (IPC), 1 the value (total revenue) of the EMS industry in the United States increased 25% in 1998 alone, reaching $22.5 billion.

Ironically, the aerospace industry, which had declined to use CMs for board production, was beginning to appreciate the benefits of having an EMS company manufacture their boards. However, many of the Tier 1 EMS companies had so much business from their consumer electronics, telecom, and automotive customers that they were not interested. Further, they preferred to work with the commercial sector rather than deal with the stringent requirements, bureaucracy, and other challenges of defense work.

EMS Industry Returns to its Aerospace Roots
All that changed in 2000 with the collapse of the dot.com bubble. Suddenly, the Tier 1 EMS companies found themselves with excess capacity. With their high overhead costs, they needed to find new sources of work. It was at this point that the EMS providers and the aerospace industry found common ground again, and began a new phase of their historical relationship. Now, the Tier 1 companies could provide far more than prototyping – they offered a full array of services, from design to manufacture to distribution, which helped the OEMs obtain maximum value from their investment. In return, defense and aerospace contracts allowed the Tier 1 players to get their production lines running again.

Conclusion
The evolution of today's top EMS providers reflects a confluence of factors – new technologies, market trends, business vision, and some fortunate coincidences – that have completely transformed the top level of this industry. From their origins as board prototype assembly shops, these companies have steadily grown and diversified their services, expertise, facilities, and value. In the process, they have become strategic partners with their OEM customers.

Jabil Defense & Aerospace Services
St. Petersburg, FL
jabil.com

In the next part of this series, we will explore the current markets, technologies, services, and business model of leading global EMS companies.