The EMS business forecast – A tale of two scenarios

Michael Palma, IDC

IDC recently published its latest forecast for the electronics manufacturing services industry (Worldwide IDC Electronics Manufacturing Services Market Forecast, 2008-2012, March 2008). In this article for, I expand some thoughts on our EMS industry forecast as we examine the state of the U.S. economy. As shown in the table below, we estimated the EMS industry (including EMS firms and ODMs) grew 17% in 2007, mostly due to the strength of the computer and the consumer device segments. Looking forward, these sectors will likely continue to drive the EMS market, leading us to believe the EMS industry will continue to outperform the broader IT market in terms of top-line revenue growth, reaching a compound annual growth rate of 10%. In the short-term, we also expect to see strong revenue growth of 14% in 2008 and 12% in 2009.


Worldwide EMS Industry Revenue Forecast (US$B)

Source: IDC, 2008

2005 2006 2007 2008 2009 2010 2011 2012
Worldwide EMS sector 121.7 144.6 162.7 183.4 204.5 225.3 243.6 260.6
Worldwide ODM sector 70.3 85.0 105.7 122.3 139.0 152.6 165.1 176.9
Worldwide Total EMS business 192.0 229.6 268.4 305.7 343.5 377.9 408.7 437.5


This outlook is based in part on the macroeconomic forecast data available through mid-February, which formed our most likely scenario: the U.S. would not move into recession, though there would be a significant slowdown in GDP growth.

Combined with a continued strong outlook in the near-term for computers and mobile phones, especially outside the U.S., we still maintain strong expectations for the EMS industry. Deciding that this was the most likely scenario was difficult given the recent economic news, but structural factors seem to reinforce this scenario.

Outsourcing remains a core element of the IT industry, which may increase during tough economic times. The total available market (TAM) for the EMS industry should continue to grow, especially for the emerging sectors. Finally, the industry is dependent on Asian manufacturing for more than half of all revenues and, since labor costs are rising in the region, and with margins already thin, outsourcing costs will likely also increase. This is exacerbated by the falling value of the dollar, further increasing costs for OEMs, increasing revenues. These and other factors mean that even in a recessionary period, there are strong arguments in favor of continued top line growth in the EMS industry — if not profits.

Like any forecast, however, this one is based on the most likely scenario at the time it was generated, and decision-makers need to be aware of the alternative scenarios.

In 2008, we face a situation where strong forces are feeding into these other scenarios, which may likely bring about another set of outcomes.

Where do the threats to our forecast come from?

The most immediate threat to the forecast remains the credit crunch in U.S. financial markets.

Which path the U.S. economy takes is still muddled. Will attempts to address the current credit issues be successful or is there a more underlying problem at play remains to be seen. IDC’s January 2008 Future Scan survey of CIOs and line of business managers showed that spending intentions for the coming year, which had fallen significantly during the second half of 2007, had rebounded in December and in January of 2008.

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