Trends & Observations - Jun '05

* Venture Outsource is a supporting partner for the International Medical Electronics Congress in Paris, France, June 29 - July 1, 2005. VO president Mark Zetter will present a keynote opening morning of the congress. Mr. Zetter's presentation titled ‘Business and Medical Electronics - Improving your Balance Sheet & Market Competitiveness' will cover:

a.) whether or not a company should outsource
b.) selecting contract manufacturing partners, and
c.) outsource contract agreements.

* Pricing pressures continue in the global printed circuit board (PCB) market. Areas to keep an eye on in this sector include the networking market, quick-turn and volume business, and margins. Note that the latter tends to suffer the most when there is excess capacity.

* The wireless infrastructure market is performing nicely. EMS providers to benefit from the increased demand will be those with exposure to 3G end-market products.

* In lieu of OEMs and EMS providers insisting on price reductions from connector vendors for high-volume orders, we are seeing many mid-size connector vendors (~US$100 million) increase pricing on low-volume orders to offset the reductions.

* While the EMS model becomes increasingly more complex as providers absorb more of the supply chain and implement more sophisticated management applications, purchase order responsibility for the OEM's component design-win process is being transferred to EMS partners.

* Global handset industry unit estimates for 2005 and 2006 are 740 million and 800 million units, respectively. Demand is being driven by higher interest in subscription services, incremental demand in developing countries, and recent bottom-up forecast changes from handset vendors.

* Recent financial results from Foxconn, Quanta, and Asustek speak volumes. All three companies reported declining margins which translates into further support the contract manufacturing and ODM business can be difficult to manage. We believe the cost-price environment to remain challenging for the foreseeable future and industry consolidation to continue with some players deciding to exit altogether.

VentureOutsource.com, June 2005