LOS ANGELES (April 11, 11 a.m. EDT) — Consider it a shot across the bow of the injection molding industry: One of the giants of the world of contract manufacturing is telling molders that his industry is going to powerfully reshape theirs.
Pushed by original equipment manufacturers in electronics looking for the lowest manufacturing cost around the globe, more and more production is going to head toward contract manufacturers with a worldwide presence — like Flextronics International Ltd. — and away from traditional molders.
At least that's the message from Flextronics, the would-be beneficiary of all those changes.
"We think the contract manufacturing industry will have the greatest impact on the plastic molding industry — more so than anything in the past 20 years," said Paul Santina, vice president of business development and global plastics for Flextronics. Santina spoke April 10 at Plastics Encounter, a Plastics News-sponsored trade show and conference in Los Angeles.
"I think it will be harder and harder for injection molders to be located in the United States," Santina said. "If you want to be a plastic partner to us, you need to be able to deliver parts" around the world, he added.
Flextronics already has a large presence: The company has nearly 750 675 injection presses in 17 plants on four continents, and plans to grow to 1,000 presses in the next 12-18 months, he said. That growth will come in Asia, Mexico, Brazil, and Eastern Europe, he said.
The company does more than $400 million in molding on its own, and subcontracts for another $200 million, he said.
Santina said the contract manufacturing industry will continue to grow. The company had revenues of $11.2 billion in 2000, and expects to be one of a handful of contract manufacturers with $20 billion to $40 billion in sales.
That growth will come from more OEM outsourcing: The electronics manufacturing services industry, jargon for Flextronics and competitors like Solectron Corp., currently make up only about 20 percent of the total electronics industry manufacturing.
But some of the EMS industry has been taking it on the chin lately, seeing scaled-back orders as the electronics and telecommunications industry has slowed dramatically. Santina said he thinks Flextronics will weather that because OEMs increase outsourcing in a slowdown, and he noted that the company recently raised $1 billion of new financing that will come in handy when bargain hunting for acquisitions.
Some plastics processors, like United Plastics Group Inc., say niches remain for molders because Flextronics will not go after work of less than $50 million.
"We have to follow behind them and pick up the dregs," said Robert Alvarez, vice president of technology for Westmont, Ill.-based UPG.
Santina said Flextronics is interested in the automotive and medical markets, although he said the auto industry has some "very punitive ways of doing business."
Alvarez, a former Johnson and Johnson executive, said the medical industry remains undecided about outsourcing.
However, he added, the medical-device industry is primed for outsourcing because contract manufacturers are much more sophisticated in their technology than they used to be, and because drug therapy increasingly is turning devices into something more akin to commodity products. That could push medical manufacturers to want to use their capital on research, not on manufacturing, he said.
Increasingly, the electronics business will migrate to Asia, Santina said.
Flextronics recently took over most of the cell-phone work for Telefon AB LM Ericsson and plans to move that to China. Ericsson's cost of labor doubled in the past two years in Mexico, to $3.50 an hour, and Flextronics suggested moving most of the work to China.
"We keep building plant after plant (in China) and we keep seeing no pressure whatsoever on wages," Santina said.
About 525 of the company's injection presses are in Asia, he said.