San Francisco-If you made a quick list of the world's largest smart grid vendors, there's a good chance that Jabil Circuit would not be on it.
And that would be a mistake. The contract manufacturer has already become one of the largest manufacturers of smart meters in the world, said Stephan Dolezalek, a partner at VantagePoint Venture Partners during a presentation during the Cleantech Forum taking place this week in San Francisco.
Jabil already makes equipment for Silver Spring Networks, he said. Silver Spring makes the radio but Jabil assembles the unit. (VantagePoint is not an investor in Silver Spring.)
Other contract manufacturers such as Taiwan's Foxconn (which makes a lot of equipment for Apple), along with Flextronics from the U.S., are getting into smart grid, too. Tendril Networks and Adura Technologies, two VantagePoint portfolio companies, recently issued proposals to contract manufacturers to produce equipment.
Turning over mass manufacturing to companies like this represents a crucial stage in the evolution of the smart grid. Silver Spring, Tendril, Lumenergi, Adura and the other Silicon Valley-bred start-ups are not experts in manufacturing and they don't want to raise the money to build and own their own factories. Thus, outsourcing to the Jabils of the world makes financial sense.
But the contract manufacturers do more than simply execute on a blueprint. Americans often hold an image of contract manufacturers as a bunch of guys with soldering guns outside of Taipei. Typically, contract manufacturers evolve to become ODM, or original design manufacturers, which often participate in or control the design of products. Thus, the more U.S. companies rely on contract manufacturers, the more they will come to depend on them for ideas and support.
And believe me, contract manufacturers know how to climb the value chain. I used to cover contract manufacturers for News.com. Once an exec told me how IBM designed its desktops: IBM would fax a specification sheet to three manufacturers. Whoever came back with the lowest price and the most attractive design won. Voice-over-IP telephones were promoted by Taiwanese manufacturers years before U.S. carriers adopted them.
Contract manufacturers also tend to have financial heft. Jabil pulls in about $12 billion a year in revenue and employs 85,000 worldwide. Last year, it signed a deal to assemble modules for SunPower.
Taiwan, where a lot of the contract manufacturers are centered, already has a solar industry. Last year, Taiwan Semiconductor Manufacturing Co. , one of the world's largest chip makers for hire, announced it would invest $50 million to get into LEDs and solar. Many (including me) believe that someday soon, a large chip foundry like UMC, TSMC, or SMIC could become a solar cell maker for hire. Start-ups with a novel solar cell but little money could contract with them to make prototypes and commercial volume of cells or modules.
Powercon, which historically has made computer components, last year started getting into solar. Smart grid should be easy.