Understanding electrical components terms: From OEM to EMS

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The electrical components industry is responsible for integral parts that make up common devices used every day. From laptops to smartphones, the industry is the driving force producing the clockwork that powers the perpetually growing consumer electronic devices market.

However, trying to understand the jargon of the components industry can be overwhelming, especially to newcomers. These terms are also often misused. That’s why understanding terms like OEMs (original equipment manufacturers), EMS (electronics manufacturing service), CEMs (contract electronics manufacturers) and ODMs (original design manufacturers) is crucial to gaining a deeper knowledge of the components industry

Like the inner workings of the devices they power, OEMs, ODMs, CEMs, and the like, work together to drive the components industry. To understand how these pieces fit together is to better understand an industry that was worth roughly $263 billion worldwide in 2018, and continues to grow in scope and influence each year.

Let’s dive in.

What Does OEM Mean?

“OEM” is likely the main culprit in causing confusion to those new to the components industry, as it is used in many disjointed ways. There are two primary scenarios in which OEMs operate. In the first scenario, an OEM provides the components that comprise another company’s products. For example, company A (an OEM) might provide components to company B (a large electronics company, let’s say Samsung or Sony). Company B will then assemble the components to make their final product, a smart TV, for instance.

The second scenario is much simpler. The OEM manufactures ready-made products from which it sells. There is no company B that completes the assembly in this case.

Innovation and development drive OEMs’ business models. As such, they own the rights to the products they innovate. However, a bulk of the manufacturing may be outsourced. This also adds to the confusion by making the “manufacturing” part of the equation more of a gray area.

This is where the next term comes in …

What Does EMS Mean?

An electronic manufacturing service (EMS) will manufacture parts for OEMs. In this case, OEMs will innovate the technology and task an EMS with manufacturing the parts. With the parts in hand, OEMs will either sell the complete products as ready-made, or sell the parts to a Samsung or Sony, like in the example above.

An EMS can be responsible for designing, manufacturing, and testing components for OEMs. EMS companies also differ in scope and scale, with “Tier 1” referring to multi-billion-dollar operations that account for the upper echelon of the industry. On the other hand, “Tier 4” resides on the lower side of output and revenue, generating figures upwards of $100 million. Tier 1 companies are responsible for some of the world’s most popular consumer electronics, like the iPhone or Xbox.

What Does CEM Mean?

So, we have OEMs, EMS, and now CEMs. All of these are capable of manufacturing components on some scale. However, as mentioned previously, OEMs typically contract out the manufacturing side of things.

In the components industry, there is yet another type of entity responsible for manufacturing: the CEM (contract electronics manufacturer). CEMs do just what their title implies; they manufacture electronics. But unlike other manufacturers who use their customers’ designs and IP (intellectual property) to churn out product, ODMs (which is similar to the CEM) typically own the IP of the product they manufacture.

Furthermore, CEMs operate across multiple markets and are not just confined to, say, the industrial sector.

Making Sense of Multiple ‘Manufacturers’

Yes, sorting through multiple manufacturers across multiple sectors that overlap on a Venn diagram of the components industry can be difficult to grasp. But knowing what entities are responsible for the ebbs and flows of the industry is also crucial to gaining a deeper understanding of the industry as a whole.

Grasping the above terms and concepts is a great starting point.

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