Changes underway at global EMS destinations

Bear Stearns & Co. releases perspective on some dynamic trends in the EMS industry. Portions of the report are detailed below.

June 2, 2007

Executive Summary

Since the publication of Bear Stearns & Co.’s first report on low-cost manufacturing last year, the investment firm indicates it has seen a continued trend of acquisitions, consolidation, and restructuring by EMS providers in order to increase low-cost footprints, realign existing high-cost footprints, and diversify end-market and customer exposures. China continues to strengthen its leadership in global manufacturing, while India and Vietnam are gaining more attention from OEMs and contract manufacturers.

Meanwhile, the Ukraine, Poland, Slovakia, and other Eastern European countries remain popular as destinations for European manufacturing. In South America, Brazil has also made significant progress in shaking up bureaucracy, which should increase its likelihood of becoming another
EMS destination of choice.

Finally, Mexico is luring companies back from China as a result of its supply chain optimization, further solidifying its strategic importance in terms of manufacturing for North America.

While the continued outsourcing trend, increasingly competitive marketplace, and potential demand in many of these emerging markets remain the key drivers of low-cost manufacturing, Bear analyst Kevin Kessel feels it is important to highlight the incremental changes as well as his firm’s new findings over the past year with regard to the major topics explored in their previous reports.

China maintains low-cost manufacturing leadership

China remains the electronics industry leader in low-cost manufacturing by continuing to leverage its low-cost labor, well-established infrastructure and supply chain, and fast-growing domestic market. The country is strategically well-positioned as a manufacturing location for export to nearby countries such as Russia, Thailand, Malaysia, Indonesia, Hong Kong, and even India, to name a few, as well as some of the more expensive manufacturing locations such as the European region, Japan, Singapore, South Korea, and Taiwan.

Many electronics companies with manufacturing facilities located throughout China have capabilities ranging from design to manufacturing, shipping, repair, and software development, all aimed to better support the needs of OEM customers and to satisfy both local and global consumer demand.

Amid rising labor costs in the popular coastal areas of China, Bear has witnessed a growing trend of many companies moving manufacturing more inland as well as north to benefit from the tax incentives that have been established, primarily within the central and eastern parts of the region. Lower costs, as well as other favorable policies enacted by the central and local governments, continue to attract manufacturers to the area.