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Written by Randall Sherman   
Monday, 31 October 2011 15:02

Against most expectations, the EMS market showed healthy first-half growth.

The worldwide contract manufacturing industry grew substantially in the first half of 2011 – an estimated 22% compared to 2010, according to The Worldwide EMS Market Quarterly, published by New Venture Research Corp. (newventureresearch.com). This is surprising because the industry just came off a spectacular year of approximately 37% growth, after several years of slowing growth. Most industry pundits expected a decline in growth in 2011, but apparently continued demand for new products bursting on the scene in 2010 (such as iPads, e-readers and smartphones) has spurred this trend. Foxconn, the largest EMS company in the world, experienced one of the highest growth rates during this period (38%), outpacing it closest competitor (Flextronics), which grew 17% during the period. Jabil Circuit experienced much stronger growth at 26%, while Celestica was up 17%. Table 1 summarizes the growth for the entire contract manufacturing industry (EMS and ODM companies).

Gross margins declined in the first half from the previous year, reflecting a trend of constricting costs. This naturally affected profits significantly (Table 2). Indeed, profits fell dramatically among publicly held contract manufacturers, reflecting a trend from previous years (Table 3). While revenue growth has been increasing this year, profitability has been shrinking, indicating a tightening of the industry.

The following performance highlights occurred among the top 10 contract manufacturing companies during 2011:

Foxconn. Foxconn experienced a very significant jump in revenue of 38% in the first half, yet the company’s net income declined 11% during the same period. Foxconn’s cash position remains very strong and its debt very low under the circumstances. Such a revenue growth rate, however, cannot be expected to be maintained without the continued positive growth of its leading customers such as Acer, Apple, Cisco, Dell, HP, Intel, Lenovo, Motorola and SonyEricsson.

Flextronics. Flextronics achieved a respectable growth of almost 17% when comparing the first quarter 2010 to the first quarter 2011. While profit margin growth declined over the period, profits improved – a very positive sign and a substantial improvement over its results in 2010.

Jabil. Jabil experienced a very strong 26% growth in revenue in the first half, as well as a dramatic improvement of almost 100% in earnings, indicating that the company is doing better than ever. Clearly, the company is executing and performing very well compared to its EMS peers.

Celestica. Celestica expanded revenue at a similar growth rate to Flextronics (17%) in the first half. Perhaps more important, the company improved earnings by almost three times to a very healthy rate for the EMS industry. If Celestica can maintain this performance rate, it will emerge as one of the most successful EMS companies.

Sanmina-SCI. Sanmina-SCI experienced a very low growth rate compared to its competitors in the first half. Worse, the company’s earnings slipped by more than a third over the same period, despite many project wins that should have boosted results. Sanmina-SCI still seems to be struggling with its niche.

Shenzhen Kaifa Technology. Kaifa experienced only moderate growth from the first half of 2010 to the first half of 2011 compared to the entire contract manufacturing industry. It is difficult to tell where the company’s problems and opportunities reside.

Benchmark Electronics. To our surprise, Benchmark experienced a decline in revenue of more than 3% in the first half, while other EMS companies performed extremely well. Similarly, the company’s earnings suffered significantly, dropping almost one quarter. The explanation must reside in a customer base heavily dependent on the computing and communications sectors, which account for approximately 55% of total revenue.

Plexus. Plexus experienced lower-than-average revenue growth from the first quarter 2010 to the first quarter 2011 of approximately 10%, less than half of the total contract manufacturing industry revenue for the same period. The company improved its profit slightly, but still can’t seem to get traction because it is so dependent on the communications sector, where it derives 55% of its total revenue.

Venture. In the second quarter, Venture recorded revenue of $509 million, resulting in weak 4% growth from year-to-year from the first half 2010 to the first half 2011. Of the company’s segments, test & measurement, medical/others and retail solutions & industrial products exhibited year-on-year growth, both in single digits. Earnings increased slightly by almost 8%, compared to revenue growth of 4%, but it was not enough to compare with competitors that performed much better.
For more information on this report, please visit newventureresearch.com.

Randall Sherman is president and CEO of New Venture Research Corp. (newventureresearch.com); This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

Last Updated on Tuesday, 01 November 2011 11:28


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