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In the short term, these megacompanies face a period of adjustment. Flextronics, for one, will have to digest its gut-busting acquisitions. Says Merrill Lynch analyst Jerry Labowitz: "It's a real challenge for any company growing at an extraordinary rate to do three dozen acquisitions in less than 15 months, especially when many of them are in new areas for the company." In the meantime, the big EMS players must also adjust to the economic woes of their customers. In a speech last month, Marks predicted that the telecom industry is "going to get a lot nastier, with a lot of dislocation"--referring to the number of plants (including his own) that are closing and to workers who will be laid off.
At the same time, analysts agree that the downturn will make the EMS giants even more powerful. The EMS business has already grown to more than $100 billion in sales in 2000, from $60 billion in 1998. It is expected to reach $130 billion in sales this year, according to Technology Forecasters Inc., and $260 billion by 2004.
Fewer and fewer famous brands make what they sell. Apple no longer assembles the bulk of the iMacs it sells. Hewlett-Packard, the world's leading brand of personal printers, doesn't make a single one. Nor does Cisco make the complex digital switches and routers that make up the backbone of the Internet. Instead, each of these companies (and the list grows daily) is throwing its financial and intellectual capital into product research, design and innovation--conceiving the next generation of gadgets and services, and marketing them under trusted brands.
In some ways, the name brands--not only the Microsofts and Nokias but also the Kodaks and Gaps--are making a devil's bargain. If some entrepreneur has a revolutionary idea for a videophone or an instant tooth flosser, all he has to do is get Wal-Mart to agree to sell it and then get Sanmina to design and build it for him.
Consider Donna Dubinsky and Jeff Hawkins, the brains behind the ubiquitous PDA, the Palm Pilot. They left Palm three years ago and started Handspring with a scheme for a competing PDA, the Visor. Within 15 months, Handspring was shipping its new Visors, thanks to Flextronics and Solectron. And now the Visor has 7% of the $4.3 billion global PDA market.
The top four or five EMS companies share many clients. What distinguishes Flextronics is its global reach and the breadth of its operations. Marks jokes that he nearly flunked the only manufacturing course he ever took at Harvard Business School, but he made up for it by understanding globalization earlier than most of his peers. He has led Flextronics to locate its factories to take advantage of low-cost, relatively low-skilled labor in places like China, while having more complicated products made in more developed countries in Europe and Asia.
Marks also began consolidating suppliers and clients into industrial parks in China, Hungary and Mexico. Flextronics' park in Sarvar, western Hungary, includes a manufacturer of Styrofoam packaging, a maker of cardboard packaging, a forwarding company and a company specializing in sheet-metal stamping. The new Guadalajara location boasts circuit-board fabricators. And all are connected, on a secure computer network, with design and engineering labs around the world.