Viva Mexico? EMS gaining in south.

Guadalajara -- Electronics manufacturing in Mexico is not dead after all. While expansion in China continues to make the most waves, Mexico has been quietly reshaping its manufacturing infrastructure to accommodate higher end and faster turn products.

Companies are adding capacity south of the border. According to published reports, Tier 1 EMS provider Sanmina-SCI (sanmina.com) is opening a 200,000 sq. ft. manufacturing facility in Guadalajara and will "aggressively" relocate production from the U.S.; Jabil (jabil.com) may expand in Chihuahua and Reynosa; and Hon Hai (foxconn.com) has designs on Juarez. On the supplier side, Kester (kester.com) announced plans last fall to ramp production in Nogales.

Product mixes take on a new look as suppliers supplement their traditional volume business with greater value-add offerings such as box-build, systems assembly, logistics and after-market service. Jabil's NPI activity in Mexico is said to be up four times over last year. And Solectron's (solectron.com) product mix has reportedly evolved from 80% high-volume/low-mix products in 2002 to just 45% today, with the rest being medium-volume/medium-mix (31%), low-volume/high-mix (19%) and systems assembly (5%).

Lean initiatives are progressing, too. In Guadalajara, Jabil and Solectron have been transformed, with the latter switching to work cells with inventory kitted and positioned for quick delivery to the line. (See CIRCUITS ASSEMBLY'S March issue for more on Lean manufacturing.)

But not all is well, one analyst says. Deutsche Bank (db.com), which visited Guadalajara in March, says "demand trends appeared lackluster" and "order activity definitely appeared slower than last year in early March." DB estimates sales of the top five EMS vendors are off 2% quarter-on-quarter. DB analysts also noted marked differences in demand for set-top boxes and communications infrastructure products. Plant utilization rates were on par with last year, the firm said, thanks to program transfers from the U.S.

DB estimated Jabil has lost at least six customers in its Guadalajara facility since last year, including programs from Marconi, Dell, IBM, Hughes, GE and Alcatel, and some Cisco business (to Hon Hai). Jabil has scored new wins from Nokia, Electrolux, Philips, TiVo and Cisco.

DB predicts further pricing pressures and high turnover among EMS firms as OEMs shift programs from EMS suppliers (according to DB, OEMs can strike a deal with a new EMS company and move a part number to volume in less than a month).

In the end, Mexico's gain may not come at the expense of China but rather the U.S. Wrote DB: "While we believe some programs in Mexico still need to transition to China, like set-top boxes, we expect program transitions from the U.S. to Mexico to more than offset this."