Tools for EMS manufacturing quote pricing analysis - Optimize total landed cost savings for your contract electronics outsourcing programs

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Tools for EMS manufacturing quote pricing analysis - Optimize total landed cost savings for your contract electronics outsourcing programs

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2011 Forecasts global EMS / ODM growth slowing with China no longer the exception

China manufacturing operations responsible for more than 75% of aggregate industry growth in 2010. Industry grappling with reduced margins. Overall margin improvement now a function of end-market mix.

 

Following a 33.4% increase in revenue in 2010, the global electronic contract manufacturing services (EMS) sector will experience slowing growth in 2011, with sales rising by only 8.5%, according to new recent research by IHS iSuppli.

The contract electronics industry, consisting of EMS and original design manufacturing (ODM) segments, will finish 2011 with revenue of $376.7 billion, up from $347.3 billion in 2010, as presented in Figure 1.

 

Figure 1: Global electronics contract manufacturing revenue forecast

Global electronics contract manufacturing revenue forecast 2014

 

Revenue will continue to rise at annual rates between 9%percent and 7% during the following years, reaching $472.3 billion in 2014.

“The contract manufacturing industry in 2011 is grappling with reduced profit margins for certain consumer-oriented products because of intensified competition for new business,” said Thomas J. Dinges, CFA, principal analyst for outsourced electronics manufacturing at IHS. (OEM Exclusive: Request list of EMS/ODM providers anywhere in China or the greater Asia region)

“EMS and ODM providers with exposure to these areas have been hardest hit, while others with a more balanced end-market portfolio have fared much better,” added Dinges.

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Compared to just a few years ago, more high-mix markets have taken center stage.

Nearly all of the largest EMS providers report very strong near-term growth in these segments, as well as a widening pipeline for future business.

In particular, the global ODM industry remains highly oriented toward the computing and consumer end markets.

China generates bulk of growth
Manufacturing operations in China were responsible for more than 75% of aggregate industry growth in 2010, and the country is expected to continue carrying the burden of driving worldwide growth in the global outsourced electronics manufacturing market in 2011.

The largest outsourced manufacturing provider, Hon Hai Precision Industries, reported nearly 60% revenue growth in the first nine months of 2010 compared to the same period in 2009.

With China’s domestic economy expected to grow close to 10% in 2011, much faster than either Europe or the US, such growth will drive higher consumption in China, many in the contract electronics manufacturing industry believe.

Should growth fail to materialize, however, the industry would be materially impacted.

Margin improvement is now a function of end-market mix.

Given the rise of material costs and increasing wages in major manufacturing locations like China, industry margins in 2011 are apt to be heading sideways or even downward.

Last year, margin improvement had been more a function of cyclical factors, driven by the stronger-than-expected recovery in revenues.

Offsetting this was higher-than-expected pricing pressure in some consumer-oriented product markets, such as notebook PCs.

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In the third quarter of 2010, average gross margins for the 10 largest EMS providers rose by 1.30%.

In contrast, the average gross margins for the 10 biggest ODM providers declined by 1.16% because of greater exposure to highly price-sensitive markets.

Of more concern, though, is the fact that only four of the largest companies across both EMS and ODM industries reported sequentially higher margins despite higher revenue.

In 2010, outsourced electronics manufacturing providers with a higher proportion of less price-sensitive consumer-oriented product appeared to have a smaller impact on margins.

Margin improvement in 2011 is likely more a factor of product mix, as opposed to pure cyclical aspects such as revenue growth.

With the industry starting to add capacity, OEMs have grown more concerned with pricing, and input costs have risen.

Source: IHS iSuppli

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