Philips makes push into contract manufacturing

Taking advantage of its global operations, Philips Electronics NV's printed circuit board assembly division has decided to take on work from outside customers.

For the past several months, the PCBA unit of the Netherlands-based consumer electronics company has quietly dabbled in contract manufacturing. Now, the unit that has 13 locations in the Americans, Asia, and Europe plans to aggressively market its design, manufacturing and logistics services to other OEM customers. Philips' PCB Assembly operations will be renamed Philips Contract Manufacturing Services.

Philips Electronics' move to enter contract manufacturing comes at a time when EMS providers are downsizing their global operations to regain profitability in the current economic downturn. The company's PCBA division was established in 1999 and began accepting most of its current customers this spring, said Michel Charreau, chief executive of Philips Contract Manufacturing Services.

"So far, we have six customers -- all mid tier European OEMs in automotive, consumer electronics and instrumentation sectors," Charreau said. "We brought on one customer last year and the rest in the spring."

Prior to its name change, Philips PCBA unit contributed $1.5 billion annually to its parent company's revenue. Within the next three to four years, Charreau expects the contract manufacturing unit to generate 70% of its revenue from its parent company and 30% from other OEMs.

"We have services in design, engineering and test that will greatly help mid-tier OEMs," Charreau said. "We already have a global footprint like the big EMS providers."

But unlike major contractors, Philips Contract Manufacturing Services is tethered to a parent company with a different business model, according to industry observers.

"They're trying to fill up plants," said an analyst who asked for anonymity. "I don't see them being a dominant player. OEMs that have entered the EMS space have had a difficult time because it's a different business that requires different thinking."

Still, Charreau is convinced that Philips Contract Manufacturing Services will capture a significant share of outsourcing from automotive, consumer electronics and instrumentation OEMs that want to tap into the unit's supply chain services.

"We're not in competition against top tier contractors," Charreau said. "Our competition, for right now, is second tier contractors".