How EMS Can Scale Defense Production Faster, with Kitron's CEO Peter Nilsson

Defense electronics is moving faster than the supply chain can comfortably handle, and the numbers are forcing a rethink of what “normal” growth looks like. I sat down with Peter Nilsson, President & CEO of Kitron Group to unpack a dramatic jump in defense-related revenue, what’s driving it, and how an EMS provider can scale without getting trapped by over-concentration or runaway complexity.

We get specific about where the demand is coming from: legacy defense primes with long ramps and long program lives, plus a newer wave of defense tech companies building products at startup speed. That difference changes everything for electronics manufacturing services, from how you plan capacity to how you support rapid product development and transition into repeatable production. We also talk about the less glamorous reality behind big order books: lead times, component shortages, and the pain of distributor decommitments even after parts have been on order for a year.

From there, we explore what modern operations teams are doing to stay ahead, including AI agents embedded in ERP to chase recommits, validate the master schedule weekly, and trigger automatic replanning. We also zoom out to broader growth drivers like AI and data centers, and why industrial IoT, connectivity, and data-center infrastructure hardware are creating demand far beyond the server rack. Finally, Peter shares how they think about organic growth versus M&A, what makes an acquisition worth integrating, and why brand expectations around performance and reliability can’t slip during expansion.

If you care about defense manufacturing, EMS strategy, electronics supply chain resilience, and scaling production under pressure, hit play. Subscribe, share with a teammate, and leave a review, then tell us what supply chain risk keeps you up at night?

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Transcript

Welcome And Recent Results

Philip Stoten, Journalist and Podcast Host 0:08

Hello, I'm Philip Stoneton from My House to Yours. Welcome to EMS at Sea Level. I am joined by Peter Nilsson. Uh Peter, always a pleasure to chat. Always look forward to our chats. I was particularly interested in this conversation because I saw your recent results and uh some of the recent press releases. And there's some some rapid growth going on. Let's start with kind of the elephant in the room with respect to those numbers, and that's the inflection point in the defense market. Up from 40 close to 44 million to nearly 140 million last year to this year, which is more than tripling in a single year. Um is that sustainable? How do you how do you see that? And how do you manage the risk of um maybe over concentration? Because that's become a much bigger part of the uh the the overall turnover now.

Peter Nilsson, CEO, Kitron Group 1:07

Well, thanks for having me on board here again, uh uh Philip. Always enjoyable. Uh I think it's sustainable, yes, right? We we uh about half of that segment is from defense primes. Those programs haven't really taken off yet. As we see with some of our some of our uh uh competitors, uh, you know, there's very slow ramp up and uh and the the large parts of those programs are still yet to come. Some of the orders we signed and and we booked into into the first quarter are for next year, even on them. So it's about half of our sales for this year, I would expect, is coming from what we call, you know, not legacy defense primes, but but uh new defense tech and very rapid product development. So that's super exciting. Not only because not only because uh it it's you know uh very quick ramp-ups here and now, but these companies are doing really, really well. They're looking at the legacy defense primes and seeing, okay, those guys are slow, how can we compete with that? And and uh that's what's exciting because a lot of new product development is happening where where uh the cost is coming way down. Uh the speed and agility of of uh of the new defense tech is really driving change. And uh so happy that we're able to get on board there now with with uh getting close to 10 customers on on that side.

Philip Stoten, Journalist and Podcast Host 2:36

Yeah, I mean it's impressive, isn't it? And when you think about it as it does change as an industry and become that more agile and more dynamic, it really suits those deep uh EMS partnerships that can really add value and can create that speed to scale that that perhaps you can't you can't do when you're insourced.

Peter Nilsson, CEO, Kitron Group 2:56

But it's a it's a it's a it's an enormous amount of work when you start up because because uh the ramp-ups are extremely quick. You're you're going from you know doing nothing to building uh thousands and thousands of units a week on these various players. And now in this, you know, the I I think why why why we're seeing a little bit more challenges on the component market is just because of the growth, right? Strong sector growth across the board and that and the enormous ramp up in defense, that's when you see supply constraints, right? If you don't have growth, you know, then you probably have excess material.

Component Shortages And Distributor Decommitments

Philip Stoten, Journalist and Podcast Host 3:35

Yeah, and as you look down that supply chain, do you think the the component distributors, those suppliers that you are reliant on to a certain extent, are as agile as you are? Are they responding as quickly as you like?

Peter Nilsson, CEO, Kitron Group 3:49

I think market demand in general is driving er all sorts of behavior, right? Well for a lot of the a lot of the ramp-ups that we uh on the legacy defense, we placed orders a year ago. And they were supposed to come in now after 52 weeks or 60 weeks or whatever it is. And now we're seeing decommitments on that. So that's not making us too happy. Yeah. And you've seen some commitments and uh things that are want been on order for a very long time.

Philip Stoten, Journalist and Podcast Host 4:19

Yeah, and that's very challenging, isn't it? And I I just kind of feel that every um supply chain crisis we have, you do a super impressive job of liaising with your customers and keeping everything ticking along quite nicely. And I I just don't feel that we've built that relationship further down the supply chain with uh with uh component distribution, and maybe it's not possible.

Peter Nilsson, CEO, Kitron Group 4:44

No, no. Uh we're putting some new activities in place here. We're we're utilizing AI agents, putting on the next generation of uh ERP system that we're migrating to in May, June. We've already built that in those agents into that system. And you're asking for recommits on a weekly basis, verifying the master schedule, and uh being able to automatically replan. Now we're putting those agents in place uh as we speak for the legacy system we're still on, because we you know it's just impossible to manage it without uh having help.

Philip Stoten, Journalist and Podcast Host 5:20

Yeah, absolutely. And you need that, you need that visibility, and you need to be able to communicate that visibility with your customers. You got two really nice big contracts recently, one for 42 million, I think, and one for 37 million, um, from Defense Architecture, I think, was one of them, and uh tactical communication was another. They came within a couple of weeks of each other. What does that say about how the industry is engaging with you and how that long-term order book seems to be seems to be growing and giving you much more predictability for the future?

Peter Nilsson, CEO, Kitron Group 5:54

On the on the on the new defense tech, usually we have a about a six-month order horizon continuously, which means also that you know for now we don't have orders for Q4, other than some spotty smaller orders. But as we enter into June, we'd probably expect to see the orders roll into Q4. That also has to do with the commercial setup we have for all of those programs. On the legacy uh programs, the 37 million euro order for tactical communications, that's for next year. The test development within Catron to secure the functionality of the product that starts sometime in Q4 when when uh the documentation is ready to be released. But that's a long-term program. So the initial this is in an initial order for 2027. But the the the life's lifespan of that program or the projection from the customer is is it's going to be around those volumes for for the next six years. That's what they have.

Philip Stoten, Journalist and Podcast Host 6:57

Yeah, that's exciting. And the uh Delta Nordic, which is becoming Keytron Ltech, I think. Um, acquisition seems really good timing. You look at going from 120 to over 300 employees, doubling the facility size. That shows one very good timing in terms of that acquisition closing at the beginning of the year, uh, and two ambitions to continue that that growth from that really solid base.

Peter Nilsson, CEO, Kitron Group 7:23

But also the flexibility here. So uh it was challenging for them to to uh to recruit as many employees as they needed, even in the first quarter. So during Q1, we also qualified an existing ketron site to serve as a satellite facility for that production. So we can alleviate some of the the uh over demand or the undersupply from the existing facility temporarily or over the next six months or so, make sure that we actually fulfill the order book.

Philip Stoten, Journalist and Podcast Host 7:54

Yeah, footprint and scale are are important, but agility is way more important than the most.

Peter Nilsson, CEO, Kitron Group 7:58

Yeah, yeah. I mean, you need you need both the short term and the long term. And the long term that from January 2028, hopefully the new facility will be in place and we're able to attract more employees and and uh secure the future ramp-ups of that.

Philip Stoten, Journalist and Podcast Host 8:12

Yeah, you feel confident about the acquisition of talent?

Peter Nilsson, CEO, Kitron Group 8:18

The acquisition of talent. Oh, oh, yeah. Yes, it's picked up after you know uh part of that has been because of our acquisition. So now there's more security where the employees see CS as a potential employer, and they see much longer term. And now, of course, with this investment in a new factory and and the build out there, um I think that'll even increase the attractiveness of us.

AI Data Centers Fuel Industrial IoT

Philip Stoten, Journalist and Podcast Host 8:50

Yeah, absolutely. And the broad profile looks good, all five sectors grew. Um what do you see going on in those sectors in the coming 12 months? Obviously, you're looking at substantial growth in in defense. What other sectors are you excited about?

Peter Nilsson, CEO, Kitron Group 9:04

Well, yeah, I mean, uh there's no doubt AI and data centers is a big is a big contributor. We see it across not across the board, but we see it uh in in connectivity. You know, the cost of traveling to a data center to doing some maintenance versus being able to monitor it by IoT and sensors and maybe do some rejoint remote adjustments. That's driving growth in industrial IoT. So that's part of the connectivity sector. Within the industry sector, there is there's everything that goes into building one of those data centers. So HVAC solutions, uh uh uh compressors, vacuum technology, everything like that is is is seeing a surge of demand also.

Philip Stoten, Journalist and Podcast Host 9:48

Okay, so all moving in the right direction. And you mentioned in your um in your report the 1.5 billion euro ambition. Uh that's a big time. I'm excited to see that. It's not gonna be this year, I know, but uh you know, being at the upper half of your uh guidance for this year is uh is a big move in the right direction.

Organic Growth Versus Smart M&A

Peter Nilsson, CEO, Kitron Group 10:09

No, and there's also the supply constraints there. That's why it's a big reason, also. Yeah, no, so I'm I'm I'm uh very optimistic. The pipeline is strong. We have lots of big, really big new project projects going on, but you know, one or two or three of those, and then then we're pretty much there. Yeah.

Philip Stoten, Journalist and Podcast Host 10:28

And you plan to maintain your strategy of organic growth, but with uh MA when it's suitable and when it's when the right opportunity presents? Yeah, yeah.

Peter Nilsson, CEO, Kitron Group 10:39

I I think just looking at the order order book, if we can pull in an order for 50 million euros or 100 million euros, or we could spend 50 million on buying something that over time maybe generates that, it's pretty easy to to make a decision of uh where to put your where to put your cash to ramp up. Yeah, absolutely. So usually when you do an acquisition, you know, there there's going to be investments there also to bring it maybe up to standard. And uh and uh some of the numbers are are you know a little bit optimistic when you look at them and the acquisition phase also. There's lots and lots of MA to be done if you want to. Yeah. There, you know, every day I get three or four requests, you know, we look at this company, this would be a good fit for you. And it's 27 million euros or it's 30 million euros, and maybe it's 50 or 60 million euros. But for for me, it's always about what are the growth opportunities with it. Is there is it a good is there good technology? Is it uh is it in a good um uh market sector? Uh does it add regional capabilities to us?

Philip Stoten, Journalist and Podcast Host 11:49

Yeah, it's those three flags that you mentioned before. It's that capability, um, you know, uh geography and and and scale. And when you look at those kind of low 20, 20 million dollar or 20 million euro acquisitions, there there becomes an issue of scale. You know, how many of those small ones can you absorb and how much easier is it to absorb a you know a hundred million or a one hundred or a two hundred million dollars?

Peter Nilsson, CEO, Kitron Group 12:15

It has to be managed and you have to make sure that it grows. Otherwise, you know, after after two, three years, there's nothing left.

Closing Thoughts And Farewell

Philip Stoten, Journalist and Podcast Host 12:22

Well, you also have to make sure it fits the uh Keytron brand and the Keytron customers' expectations and you know, performance, reliability, service, all those things that you're um you're known for. So that's absolutely um mission critical on that side as well. It is. Okay. Well, Peter, thanks so much for your time. Always a pleasure to chat. Great to get uh update and uh again, congratulations on those recent results. We'll um we'll talk again soon. Thank you. Thank you so much. Thanks. Pretty cool.