As EMS manufacturing industry restructures and AI-driven capital sheepishly moves into factories with AI agents and AI systems, the contract electronics industry – long a backbone of global hardware supply chains – is undergoing a profound shift. Once differentiated by specialized capabilities in high-mix, low-volume production or regional footprint expertise, EMS providers and their services are increasingly becoming commoditized.
Attracting, winning, and retaining customers now demands exponentially higher investments by EMS firms in terms of time, capital, and marketing, diverting resources from core EMS business operations. This dynamic is exacerbated by AI’s redirection of trillions toward data centers, chips, and infrastructure, leaving traditional manufacturing starved for funding. Below, I dissect the forces at play, backed by industry data and trends. What I see is AI will compel EMS manufacturers to innovate or vanish in a gray sea of clones.
Erosion of differentiation: From value-add to commodity
Historically, EMS giants like Foxconn, Jabil, and Flex differentiated through vertical integration, rapid prototyping, or supply chain resilience. However, standardization driven by Industry 4.0 automation, open-source design tools, and AI-optimized processes has blurred these lines. A 2025 Deloitte report on manufacturing trends notes that 68% of EMS providers report “significant commoditization” in mid-tier assembly services, up from 42% in 2023. OEM buyers of EMS services now view EMS as interchangeable for PCB assembly, box build systems integration, or testing, prioritizing cost and speed over bespoke expertise. Although, this is somewhat less noticeable in some market verticals of EMS industry.
Meanwhile, this erosion of differentiation within EMS industry is compounded by AI tools democratizing design. For example, Cognition’s SWE-1.5 and Cursor 2.0 enable portfolio hardware startups and enterprise manufacturers to iterate designing hardware considerably faster without deep EMS partnerships, reducing the need for EMS or ODM provider-specific know-how.
To further underscore this, it’s also important to note electronics hardware design spans software-adjacent and hardware-specific elements. SWE-1.5 shines in the former but falls short in the latter, so, if you’re prototyping hardware, start with SWE-1.5 for firmware, and you want to save money, pair it with open-source options like KiCad for PCB design layouts.
Whereas Cursor 2.0’s Composer is a custom frontier coding model trained for low-latency agentic tasks, and a multi-agent interface that runs parallel AI agents without interference. It’s designed to shift from file-based editing to outcome-focused workflows: describe what you want, and agents handle the rest—coding, testing, reviewing, and iterating. It targets software engineering but can supercharge hardware-adjacent coding, especially in embedded or FPGA contexts.
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As AI agent and AI systems vendors try to capture more aspects of manufacturing supply chains, Foxconn, the world’s largest EMS solutions provider is deploying humanoid robots in its Houston AI server plant – essentially, robots building servers for Nvidia and others – further depreciating differentiation of the human element in manufacturing.
Escalating customer acquisition costs underscore growing burden on EMS provider time and resources
What was once a relationship-driven process in the EMS industry has evolved into a fiercely competitive bidding war within an increasingly transparent and crowded market. The average sales cycle for new EMS programs – for new customer contract wins valued over $50 million – now spans 18 to 26+ months, a significant increase from 14 to 18 months pre-pandemic, according to Venture Outsource private discussions with OEM enterprise manufacturers, EMS manufacturers, and ODM firms in North America, Europe, and Asia, and supported by proprietary Venture Outsource analysis. This prolonged timeline primarily stems from intensified scrutiny by OEM decision makers in the EMS services procurement process, including:
- Rigorous requests for proposals (RFPs) and request for quotes (RFQs)
- Multi-vendor tariff, technical and compliance audits such as UNSPSC, HTS, TAA
- Comprehensive geopolitical and supply chain risk assessments
As a result, new customer acquisition costs for EMS providers have risen 45 percent to 60 percent since 2023, reflecting heightened investment by EMS providers for sales engineering, compliance documentation, and extended negotiations cycles for closing new customer contract service agreements.
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Persistent margin pressure for OEMs, and EMS providers, combined with elevated customer churn inside EMS providers aligns closely with Venture Outsource’s independent analysis and real-time industry feedback, some I share below.
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