EMS perspective near-term, long-term

June 2, 2008

Investment bank JPMorgan's near-term industry outlook for the EMS industry remains under pressure. The firm remains cautious given the slowing U.S. economy, recession concerns, and what the impact of these factors might be on both consumer electronics demand as well as overall enterprise and telecommunications electronics demand.

Recent tracking of EMS inventories by the firm points to a slightly deteriorating demand backdrop in early 2008; however, JPMorgan believes the overall EMS inventory landscape remains healthy on balance.

Despite these near-term challenges, JPMorgan still believes opportunity exists for companies with favorable business mixes and company-specific catalysts.

Long-term outlook bolstered

JPMorgan believes the following three positives relate to bolstered view of the EMS industry, long-term.

1. The investment firm estimates the overall electronics industry remains only 34 percent outsourced, leaving ample room for growth and a near doubling in the market's size, assuming OEMs eventually outsource approximately 60 percent of their cost of goods sold. (COGS)
2. The highly distracting and difficult industry restructuring phase is coming to an end this year. This has resulted in a better capacity balance overall and more disciplined pricing than in the past.
3. Consolidation is underway with Flextronics buying Solectron last year, and the success of the deal will likely prompt further consolidation ahead.

Source: JPMorgan, VentureOutsource.com

    

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