The EMS market continued its extraordinary growth surge.

The worldwide contract electronics manufacturing market made another large jump up in 2011, increasing nearly 12% in revenue, following an extraordinary 2010 in which the industry expanded by 37%. Whereas most industry observers expected a modest growth rate in 2011, no one anticipated this strong a market, which was driven by continued demand for smartphones and new mobility devices (iPhones, iPads and ereaders). The largest beneficiary of this growth was Foxconn, the dominant subcontractor of these devices for a variety of key OEMs. Provided Apple continues its spectacular growth in revenue, as most analysts predict, Foxconn will continue to be lifted by its customer's rising tide.

The really good news is that virtually all industry participants made money in 2011, with very few exceptions. In fact, the contract manufacturing industry made more money in 2011 than at any time in history, although this may not continue if the past is any indicator. Foxconn once again set the record ($2.7 billion, not a great result given its total revenue of $111 billion), followed by HTC ($2.1 billion), and to a lesser extent a number of Asian ODMs. Only a minority of EMS firms did not grow or make money in 2011.

Figure 1 presents the summary forecast for the worldwide revenue growth of the EMS market from 2011 to 2016. Given the minor differences in business models between EMS firms and ODMs, NVR foresees little separation between the two types of suppliers with regard to customer services and revenue growth. ODMs should underperform EMS companies over the forecast period as a result of a riskier business model that relies on giving preference to branded and low-end computer, communications, and consumer products. To their credit, ODMs are usually better able to streamline their production methods and create economies-of-scale through the concentration of components and vertical integration, but ultimately all profits get driven to the margin over time. Because EMS firms manufacture a wider range of products, and can leverage their operations in different ways, it is believed that they will experience a slightly higher growth rate over the forecast period.

Figure 1. The worldwide contract manufacturing services market, 2011-16 ($ billions).