GUADALAJARA - Electronics manufacturing in Mexico is not dead after all. While expansion in China continues to make the most waves, Mexico has been quietly reshaping its manufacturing infrastructure to accommodate higher-end and faster-turn products.  

Companies are adding capacity south of the border. According to published reports, Tier 1 EMS provider Sanmina-SCI is opening a 200,000 sq. ft. manufacturing facility in Guadalajara and will "aggressively" relocate production from the U.S.; Jabil may expand in Chihuahua and Reynosa; and Hon Hai has designs on Juarez. On the supplier side, Kester announced last fall plans to ramp production in Nogales.

Product mixes taken on a new look as suppliers supplement their traditional volume business with greater value-add offerings such as box-build, systems assembly, logistics and after-market service. Jabil's new product introduction activity in Mexico is said to be up four times over last year. And Solectron's product mix has reportedly evolved from 80% high volume/low mix products in 2002 to just 45% today, with the rest being medium-volume/medium mix ((31%), low-volume/high mix (19%) and systems assembly (5%).

But not all is well, one analyst says. Deutsche Bank, which visited Guadalajara last week, says "demand trends appeared lackluster" and "order activity definitely appeared slower than last year in early March." DB estimates sales of the top 5 EMS vendors are off 2% quarter-on-quarter.

DB analysts noted marked differences in demand for set-top boxes and communications infrastructure products. Plant utilization rates were on par with last year, the firm said, thanks to program transfers from the U.S.

In a research note published today, DB estimated Jabil has lost at least six customers in its Guadalajara facility since last year, including programs from Marconi, Dell, IBM, Hughes, GE and Alcatel, and some Cisco business (to Hon Hai). Jabil has scored new wins from Nokia, Electrolux, Philips, Tivo and Cisco.

DB predicts further pricing pressures and high turnover among EMS firms as OEMs shift programs from EMS supplier (according to DB, OEMs can strike a deal with a new EMS company and move a part number to volume in less than a month).

In the end, Mexico's gain may not come at the expense of China but rather the U.S. Wrote DB: "While we believe some programs in Mexico still need to transition to China, like set-top boxes, we expect program transitions from the U.S. to Mexico to more than offset this."