Growth slows down, consolidation continues in contract manufacturing -

Growth slows down, consolidation continues in contract manufacturing


LONDON — The global electronics Contract Manufacturing (CM) industry is undergoing a period of deceleration and consolidation, phenomena that will transform the market by 2013 according to iSuppli Corp. Revenue for the global CM industry, consisting of electronics manufacturing services (EMS) and original design manufacturing (ODM) providers, is set to expand to $432.3 billion by 2012, rising at a compound annual growth rate (CAGR) of 7.2 percent from $305.5 billion in 2007.

While a $126.7 billion gain in revenue during a five-year period may sound like fantastic growth says iSuppli, it actually represents a major slowdown compared to years past, on a percentage basis.

Global CM revenue rose at a CAGR of 15.5 percent from 2002 to 2007. The industry CAGR amounted to 49 percent during the 1990s.

A slowdown at leading EMS provider Foxconn, shifting EMS/ODM business models, new OEM procurement strategies and OEM/CM asset transfers are identified by Adam Pick, principal analyst, EMS/ODM at iSuppli as factors in the slowdown.

The researcher believes that a major consequence of this slower growth is continued consolidation among the world’s top CM providers, as the ranks of the competitors thin out. Revenue consolidation among the leading EMS and ODM companies accelerated during the 2004 to 2007 time frame, as the industry’s global manufacturing capacity remained underutilized.

This consolidation will indeed continue during the next five years say iSuppli and may even accelerate. iSuppli’s research indicated that 88 percent of the world’s top EMS/ODM executives believe that by 2013, one or more of these companies—Sanmina, Celestica and Elcoteq—will not exist.

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