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HARDWARE STARTUPS
manufacturing 101
lessons from the industry experts
jerry
YANG
@jmyang1976
I did not co-found
in 1994
first of all
GLOSSARY
Electronic Manufacturing Services is the
unambiguous term that describes the services
provided by companies that design, test,
manufacture, distribute and provide
return & repair services for
electronic components and assemblies for
Original Equipment Manufacturers (OEMs).
#EMS
Original Equipment Manufacturers is the most
confusing term. Originally it means the big
brands (HP, IBM, etc) that contract the EMS
providers to manufacture for them. Over time in
Asia it has become the synonym for the EMS
providers (Foxconn, Pegatron, etc) as well.
#OEM
Following the confusing Asian logic of
calling EMS providers "OEMs", more advanced
EMS providers that are able to design final
products for OEM Clients (HP, IBM, etc) are
called Original Design Manufacturer (ODM).
#ODM
Contract Manufacturer is our preferred
terminology as it describes exactly
what the startups want from the manufacturers.
Note that this does not prevent
the confusing terms "OEM/ODM" to show up
in your conversations with Asians.
#CM
so I have my prototype working,
my Kickstarter order in hand
and money in the bank ...
MOST HARDWAREENTREPRENEURS
ARE ONLY FAMILIAR WITH THINGS IN THEIR OWN
COMFORT ZONE AND LACK GLOBAL VIEW, MAKING
THEIRPROTOTYPESUNPRODUCIBLE
“
”FRÉDÉRIC WETS
Industry and process expert, Usine IO
Formerly with Scentys and L'Oréal
a search on ALIBABA
returns 100 CMs.
I'll just send them my RFQs ...
WE FIND THAT YOU ARE GONNA
END UP WITH HUNDREDSOF FACTORIES
THAT ARE LIKELY NOT QUALIFIED
“
”SCOTT MILLER
Formerly VP of Engineering at iRobot
Founder and CEO of Dragon Innovation
General Partner of Bolt Partners
* A video interview with Scott is included in SCHOOL
Okay okay. I'll fly
to SHENZHEN myself ...
PEBBLE VISITED SHENZHEN
SIX TIMES IN 2012 WITH ITS KICKSTARTER
ORDER OF 70,000 WATCHES BUT
NO CM TOOK THEM SERIOUSLY
“
”TERRY CHENG
Former VP of Foxconn Group & CEO of Foxconn FIH
Former senior executives at HP and Texas Instruments
but I have an engineer
on my team that speaks
MANDARIN ...
EVEN STARTUPS FROM TAIWAN,
WHICH SHARE THE SAME LANGUAGE AND
SIMILAR CULTURE WITHCHINA
GET BURNED IN SHENZHENSOMETIMES
“
”JERRY YANG
Formerly with Qualcomm, 13 years of semiconductor R&D experiences in
Taiwan,Silicon Valley and Paris, 4 years as an entrepreneur with key clients
from JAPAN, TAIWAN and CHINA
there are SO MANY CMs
I can jump from one to another
as I wish ...
“
”BEN EINSTEIN
Founder & General Partner at Bolt Partners
Quoted from Medium post "Polygamy and Hardware"
TOO OFTEN STARTUPS TREAT CMs LIKE
SERVICE PROVIDERS: “JUST MAKE THE
DAMN THING AND I’LL PAY YOU.” WRONG.
CMs CONTROL THE PRICE, SCHEDULE,
AND QUALITY OF YOURPRODUCT. THEY’RE
INVESTING MASSIVE AMOUNTS OF TIME
AND RISK IN THE HOPE THAT YOU’LL BE
THE NEXT BIG PRODUCT.
#REALITYcheck
in Shenzhen there are more than
1,000 IP-Cam contract manufactures,
many of which make profit from
component sourcing and supplierkickback
in addition to manufacturingcontracts
“ white-label products with
the same design appeared on
TAOBAO.com before we even received our
order ”
“ manufactures refused to return the
molds to us after we terminated our OEM
contract with them ”
#HORRORstories
Your relationship with Contract Manufactures
is not about the contracts, but about the
manufacturers (people). Having the most
detailed contract with the wrong people is still
gonna turn out to be a disaster.
#key
#idealCM
.TRUSTWORTHY
.CAPABILITY & QUALITY
.STARTUP-CLIENT EXPERIENCES
.VALUE LONG-TERM RELATIONSHIP
HI-TECH ECO-SYSTEM
TAIWAN-CHINA
#TAIWAN
.HSINCHU SCIENCE AND INDUSTRIAL PARK founded in 1979
.1980's – Computer Manufacturing (EMS)
(ACER, ASUS, QUANTA, FOXCONN etc)
.1990's – Semiconductor Foundries
(TSMC, UMC, etc)
.2000's – TFT-LCD panel makers
(INNOLUX, AUO, etc)
Fabless IC Design Houses
(MEDIATEK, MSTAR, NOVATEK, REALTEK, etc)
#EMS
1. Honhai (Foxconn)
2. Quanta
3. Pegatron (Asus)
4. Flextronics
5. Compal
6. Wistron (Acer)
7. Jabil
8. Inventec
75%
#Foundry
1. TSMC
2. GlobalFoundries
3. UMC
4. Samsung
5. SMIC
6. Powerchip
7. Vanguard
61%
#TFT-LCD
1. Samsung
2. LG Display
3. Innolux Corp
4. AUO
5. China Star
6. BOE
7. Sharp
36%
#ICdesign
1. Qualcomm
2. Broadcom
3. AMD
4. Mediatek
11. Novatek
13. MStar
16. Realtek
19. Himax
11%
#TAIWAN-CHINA
• Most large EMS providers are Taiwanese, but have
their factories in China
• Most ICs and turn-key modules (BT, WiFi, etc) that HW
startups use are from US and Taiwan
• Turn-key solution was invented by Mediatek and
popularized byMStar and Realtek, all Taiwanese IC
design houses
• Around 1.5-2M Taiwanese work and live in China, out
of the total population of 23M
#CHINA
.INDISPUTABLE PLACE FOR EMS
.COMPLETE SUPPLY CHAIN
.COMPLETE LOGISTICS
.SUPPORTED BY THE UNIQUE
TAIWAN-CHINA ECO-SYSTEM
#MYTHaboutCHINA
.IT'S NOT ABOUT LOW-COST
(more on this later)
.LOW-COST ≠ LOW-QUALITY
(eversaw an iPhone?)
#REALITYcheck
for HW startupsthe only meaningfulplace
for contract manufacturing
is Pearl River Delta region,comprising
mainly SHENZHEN, DONGGUAN
and to a lesser degree HUIZHOU
#PearlRiverDelta
#PearlRiverDelta is historically the
richest region in Guandong
Province, including Hongkong and
Macau which had been "loaned" to
UK and Portugal in the 19th Century
GUANDONG
廣東/⼲⼴广东
CANTON
#CANTON
The Cantonese speak Cantonese, not Mandarin.Today
GuandongProvince has 106M people,
most of which speak Cantonese.
#CHINATOWN
Most of the Chinatowns aroundthe world were built
by Cantonese immigrants. The Chinese Food that
most westerners know is actually Cantonese.
Why not go in-land?
I heard thatlabor in SHENZHEN is getting
more expensive.
Isn't it true that Foxconn has factoriesall
over the mainland China?
#FOXCONN
.Owned byHONHAI Group
.Founded byTERRY GUO
.REV2014 = $115B
.GM2014 =
.NM2014 =
.MKTCAP =
7%
4%
$45B
#WHYnot
In-land EMS companies might have lower labor costs,
but they usually take much larger orders and
naturally have longer lead time till FOB
#WHY
SHENZHEN has a huge amount of small CMs with a very
dynamic and flexible supply chain. It also benefits from
the tax codes of Special Economic Zones (SEZs)
#PearlRiverDelta is without a doubt
still the top choice for HW startups
$10B+
FOXCONN, QUANTA,
PEGATRON,
FLEXTRONICS,
COMPAL, WISTRON,
JABIL, INVENTEC
$0.5-3B
Overall capability and
qualityof services as good
as the elephants, justwith
lower volumes.
$15-50M
Expert EMS firmsin
Shenzhen & Dongguan
founded bypeople formerly
with the elephants & the lions
MANUFACTURE
製造/制造
IS NOT JUST
COMPONENT
SOURCING
MANUFACTURING
TESTING
QUALITY
ASSURANCE
SHIPPING
POST-SALES
SERVICES
#Testing and #QualityAssurance
are in fact inserted throughout the
#Manufacturing process, based
on discussions with the
engineering team of the CMs
Kickstarter order sizes usually not big
enough for ordering even from agents.
Better let the CMs
source components for you.
COMPONENT
SOURCING
MANUACTURING
MOLDING/TOOLING
PAINTING
METAL
SMT
DIP
SOFTWARE INSTALLALTION
ASSEMBLY/PACKAGING
MANUACTURING
MOLDING/TOOLING
PAINTING
METAL
SMT
DIP
SOFTWARE INSTALLALTION
ASSEMBLY/PACKAGING
Injection
Thermoforming
MANUACTURING
MOLDING/TOOLING
PAINTING
METAL
SMT
DIP
SOFTWARE INSTALLALTION
ASSEMBLY/PACKAGING
Casting
Coating
Plating
ChemicalEtching
MANUACTURING
MOLDING/TOOLING
PAINTING
METAL
SMT
DIP
SOFTWARE INSTALLALTION
ASSEMBLY/PACKAGING
Screen Printer
Mount
Reflow
AOI
SPI
MANUACTURING
MOLDING/TOOLING
PAINTING
METAL
SMT
DIP
SOFTWARE INSTALLALTION
ASSEMBLY/PACKAGING
Wave Solder
MANUACTURING
MOLDING/TOOLING
PAINTING
METAL
SMT
DIP
SOFTWARE INSTALLALTION
ASSEMBLY/PACKAGING
Metal/Plastic cases
Display screens
Buttons/Keyboards
Cables/Batteries
TESTING
IN-CIRCUIT TESTING
FUNCTION TESTING
FINISHED GOODS TESTING
RELIABILITY TESTING
IN-CIRCUIT & FUNCTION TESTINGARE DONE THROUGHOUTDIFFERENTSTAGESOF MANUFACTURING
TESTING
During design phase, implement
DFT (Design for Testing)
& POST (Power-onSelf-Test)
to minimize/eliminate the needs of
INSTRUMENTS for final testing
QUALITY
ASSURANCE LCR multimeter
Gauge meter
X-ray tester
Hi-temp chamber
Vibration tester
Spectrometer
Color analyzer
Load tester
STATISTICAL
PROCESS
CONTROL
what about CMs
in EASTERN EUROPE?
#REALITYcheck
Rationale for manufacturingin CHINA
is not only aboutLOW-COST.
CHINA has the most complete
SUPPLY CHAIN that will eventually
scale you up to a $1B company
If you are a LIFE-STYLE
entrepreneur with limited ambition,
EASTERN EUROPEAN EMS
might be a decent choice
But if you dream of
being the next UNICORN,
you have to learn the
CHINESE game sooner than later
more
GLOSSARY
Design for XXX
Design for Cost (DFC)
Design for Manufacturing (DFM)
Design for Testing (DFT)
Design for Assembly (DFA)
#DFx
Request for Quotation is the
official request form you send out to
the multiple CMs that you selected out of
all CM candidates, which you believe
could manufacture your products
with the quality and in the time/cost structure
you want ...
#RFQ
Minimum Order Quantity is the minimum
quantity required by a CM for an order. The CM
needs this MOQ for the fixed cost (setup cost,
transaction cost, etc) to be spreaded out.
MOQ varies from 1k~10k somewhat
based on unit price (BOMcost).
#MOQ
Freight On Board is literally the
status where the CMs send your
finished goods on-board of the sea freights
for shipping. The CMs usually quote its
production time (e.g. 180 days) as between the
release of your final design database and FOB.
#FOB
want to learn more ?
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