Electronics Manufacturing Services

# Executive Summary The Electronics Manufacturing Services (EMS) industry is undergoing a fundamental transformation, driven by an unprecedented demand surge for AI and data center infrastructure, which is creating a clear divide between high-growth leaders and the rest of the market. Geopolitical tensions and aggressive U.S. trade policies, particularly tariffs on Chinese electronics, are forcing a strategic realignment of global supply chains toward North America, favoring companies with established regional footprints. Market consolidation is accelerating as players use strategic M&A to acquire critical AI-related technologies, such as liquid cooling, and expand their regional manufacturing capabilities. Financial performance is bifurcating sharply: AI-focused companies are posting strong double-to-triple-digit revenue growth, while those exposed to traditional end-markets face headwinds. Competitive advantage is now defined by technological specialization in complex systems, including advanced packaging and high-speed networking, and the ability to offer resilient, regionalized manufacturing solutions. Capital is being aggressively allocated towards capacity expansion for AI infrastructure, research and development in next-generation technologies, and shareholder returns via substantial buyback programs. ## Key Trends & Outlook The single most impactful trend reshaping the Electronics Manufacturing Services industry is the explosive, AI-driven demand for high-performance computing and data center infrastructure. This demand is creating a new, high-value market segment for complex technologies like 400G/800G+ networking switches, direct-to-chip liquid cooling, and advanced semiconductor packaging. This trend fundamentally alters the business model, allowing providers to move beyond traditional assembly to become higher-margin Original Design Manufacturers (ODMs) of proprietary hardware. Companies are seeing direct, massive top-line impact; for example, Celestica's AI-focused Hardware Platform Solutions (HPS) segment revenue surged 82% year-over-year in Q2 2025, while Jabil's AI-related revenue is projected to hit $9 billion in FY25. This is happening now and is the primary driver of strategic M&A, such as Flex's acquisition of liquid cooling specialist JetCool. Concurrent with the AI boom, escalating trade tensions and U.S. tariffs of 25-75% on Chinese electronics are forcing a rapid realignment of global supply chains. This has catalyzed a "nearshoring" trend, making Mexico a critical manufacturing hub and benefiting EMS providers with a strong North American presence. This strategic regionalization is no longer optional but a core requirement for mitigating tariff impacts and ensuring supply chain resilience. Benchmark Electronics, for instance, highlights its significant North American presence, representing over 55% of its total capacity, as a key selling point for customers seeking to de-risk their supply chains. Market consolidation is accelerating as players use strategic M&A to acquire critical AI-related technologies and expand their regional manufacturing capabilities. This is exemplified by Sanmina's completed acquisition of ZT Systems' data center infrastructure manufacturing business in October 2025, a deal expected to double the company's net revenue within three years. The primary opportunity lies in specializing in high-complexity systems for the AI data center market, where technological depth can command premium margins and drive outsized growth. The key risk is failing to adapt to the new geopolitical landscape, as over-reliance on a single region like China for manufacturing creates significant vulnerability to tariffs and supply chain disruptions. ## Competitive Landscape The Electronics Manufacturing Services market is competitive but relatively concentrated, with leading participants holding significant market share. Foxconn Technology Group is estimated to hold 35-40% of the market, followed by Jabil Inc. at 12-16%, and Flex Ltd. at 10-14%. Within this structure, distinct business models and strategic approaches are emerging to navigate the industry's transformational shifts. One prominent model is that of the Scaled, Diversified Leader Pivoting to AI. Companies employing this strategy leverage their massive global scale, broad service portfolio, and deep supply chain expertise to serve large, diverse markets, while strategically investing heavily to capture the highest-growth segments like AI infrastructure. Their key advantages include resilience through diversification, economies of scale in procurement, and the capital resources to make significant investments in new technologies and regional capacity. Jabil Inc. exemplifies this approach, operating across 30 countries and making a $500 million investment in a new North Carolina facility specifically for domestic cloud and AI infrastructure manufacturing. Its AI-related revenue is surging to $9 billion in FY25, demonstrating a successful capture of the high-growth trend. In contrast, the Technology-First Specialist focuses on deep engineering expertise and proprietary technology within a specific high-complexity niche, moving up the value chain from a service provider to a product-oriented Original Design Manufacturer (ODM) or Original Equipment Manufacturer (OEM). This strategy allows them to command higher margins due to technological differentiation and intellectual property, becoming the go-to provider for the most demanding applications, such as AI networking. Celestica Inc. perfectly illustrates this model, explicitly transforming into an ODM/OEM for AI infrastructure with deep expertise in 1.6T switches and liquid cooling. Its Hardware Platform Solutions (HPS) segment, which houses these proprietary solutions, is growing 82% year-over-year. Another effective strategy is that of the Regionalized, High-Reliability Partner. These companies differentiate by focusing on high-complexity, highly regulated markets, such as aerospace and defense, medical, and semi-capital equipment, and leveraging a strong regional manufacturing footprint, particularly in North America, as a key competitive advantage against geopolitical risk. This approach fosters "sticky" customer relationships due to high switching costs in regulated industries and makes them attractive to customers prioritizing supply chain security and tariff insulation. Benchmark Electronics, Inc. exemplifies this model, focusing on regulated markets and explicitly marketing its significant North American presence, representing over 55% of its total capacity, to help customers with reshoring and supply chain optimization. Ultimately, the key competitive battleground is now in the AI infrastructure space, forcing all players to either develop or acquire capabilities to serve this rapidly expanding market. ## Financial Performance The industry's revenue story is one of dramatic bifurcation, driven almost entirely by a company's exposure to the AI infrastructure buildout. Revenue growth ranges from an explosive +262% year-over-year to a decline of -3.5% year-over-year. Companies providing critical systems for data centers are experiencing triple-digit growth, while those serving more traditional or regulated markets are seeing flat to slightly negative growth as their end-markets normalize. TSS, Inc. (TSSI) stands as a prime example of the AI tailwind, reporting a remarkable 262% year-over-year revenue growth in Q2 2025, driven by its specialized focus on high-power AI rack integration. In contrast, Benchmark Electronics, Inc. (BHE) experienced a -3.5% year-over-year revenue decline in Q2 2025, reflecting the more modest demand in its core regulated markets. {{chart_0}} Profitability in the EMS industry also shows divergence, directly reflecting a company's position on the value chain. Operating margins generally fall in the 5-9% range for most larger players, with some specialized exceptions. The key driver of profitability is the shift away from commoditized assembly towards high-value, complex systems and proprietary designs. Companies successfully executing this pivot, particularly in the AI space, are commanding higher margins, further aided by operational efficiencies and a favorable mix. Celestica Inc.'s record profitability and 7.6% operating margin in Q3 2025 are directly attributed to a "favorable mix" from its high-margin Hardware Platform Solutions (HPS) segment, proving the financial benefit of its strategic pivot. {{chart_1}} Capital allocation across the industry demonstrates a dual focus on investing for AI-driven growth while simultaneously returning significant capital to shareholders. This confident strategy is underpinned by robust free cash flow generation, particularly from the high-growth segments, allowing companies to fund major capacity expansions and research and development while executing large-scale share buybacks. Jabil Inc. perfectly illustrates this approach with its $500 million investment in a new North Carolina facility for domestic cloud and AI infrastructure manufacturing, alongside a new $1 billion share repurchase authorization in July 2025. The industry's overall balance sheet position is generally strong and healthy. Many companies hold significant cash reserves and maintain low leverage, providing substantial financial flexibility. This robust financial health, supported by strong free cash flow generation, allows companies to fund strategic M&A, invest in capital expenditures, and weather any potential market softness. Sanmina Corporation's balance sheet, with $926 million in cash at the end of FY25 and a net cash position, is representative of the industry's financial strength and capacity for strategic action. {{chart_2}}