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Written by Mike Buetow   
Monday, 29 June 2009 17:16

 Caveat LectorSaying the electronics manufacturing services industry is now “out of the hypergrowth phase,” iSuppli ( in mid June forecast the sector would grow an anemic 1.1% compounded annually between 2009 and 2013. The research firm’s forecast for 2009 is even more grim: a drop of 12.3%, down from a prior estimate of a 9.9% dip.

In presenting the forecast, Adam Pick, who heads the firm’s EMS/ODM research group, cited the uncertainties of the recession, government stimulus plan, looming mortgage resets, prime mortgage foreclosures, and continuing decisions by OEMs to pull assembly in-house. Hope that industrial OEMs would lead the next wave of outsourcing has diminished, also. “We don’t see it,” was his grim assertion.

Pick also took issue with those who claim the industry has turned up. “First-quarter EMS sales shrunk 16%. The rate of deterioration slowed, causing many to suggest we have entered the trough. … [However,] guidance is still negative, and how could we hit the bottom if guidance is still negative?”

While I don’t question the data points, in my opinion there are at least a couple of things wrong with the conclusions. For starters, the emphasis is simply on revenue growth. As such, much of Pick’s data are tied to the performance of less than 10 publicly traded EMS companies. Extrapolating the health of an industry of at least 2000 firms worldwide based on the results of 10 is risky.

Two, the size of the market itself. iSuppli shows Foxconn as a $55 billion company. Yet keep in mind that the Taiwanese firm makes motherboards, bare boards, connectors and countless other products. By contrast, Circuits Assembly’s analysis of Foxconn’s actual EMS and ODM sales puts the number quite lower: $42.3 billion. Then there’s the issue of Foxconn’s wild growth rates – which some say are not real – which have driven much of the broader sector’s ramp over the past 10 years. Hon Hai Group (Foxconn is its trade name) has done nothing to quell the craziness. Recall that in early 2008 the company forecast sales to increase 30% to $81.3 billion. Take away Foxconn and the entire scope of the market changes.

I would argue the more important – and long neglected – data point is profit growth. And that’s why I like what some of the former crew of Technology Forecasters is doing. Now under new management and renamed InForum (, the new leaders’ expertise is supply chain management, and the group is looking to add the rest of the electronics supply chain to its OEM-EMS roots. As InForum president Kathleen Geraghty told us in June, all sizes of electronics companies’ supply chains have some global dimension to them. “We want to bring in some extended views and [place] a great emphasis on globalizing” the reports and data.

To be sure, some of the old hands are still on deck. Matt Chanoff remains the head of economics. TFI founder Pam Gordon is contributing from the environmental perspective. Charlie Barnhart and Jennifer Read are in the mix as well.

But when InForum looked at the demographics of its members, it realized the majority are OEMs and EMS firms. As InForum’s Eric Miscoll notes, “The way the forum always worked is, get the OEMs, and everyone else will be there.” But members sensed the group became EMS-centric. In response, Geraghty wants to increase the balance of component manufacturers. “We see them at the center of what we are able to do as an industry. The capacity and efficiency of the industry begins with that node. So if we are trying to tackle that issue and facilitate discussions that allow us to move forward, that segment needs to be a part, both from a technology and operations aspect.”

As an industry, our logistics operations have made real progress since the last downturn. On the latest AMR Research Top 25 Supply Chain list (, half – including Apple, Dell, Cisco, Nokia and IBM – come from high tech. And there’s no doubt the industry on the whole has learned its lesson when it comes to cash management and debt-to-asset ratios.

But there’s one other input to this equation, and not to pick on iSuppli too much, it is one that InForum seems to understand better. Even in the run-up from 2003 to the first half of ’08, EMS companies struggled with margins. In a downturn, it’s easy to say there’s excess capacity. But the EMS side needs to shed capacity now – and repress the urge to add it as things turn up – if it wants to make the relationships with OEMs a long-term, profitable undertaking.

And when the day is done, aren’t profits the most important metric?



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For the first time in years we see parity in the Eastern US among EMS factories from Asia, Mexico and the US. This EMS market condition will permit American OEMs (the EMS industry refers to OEMs as customers) to have more EMS pathways to choose from. Now more than ever, such EMS assignments will require deeper investigation relating to the OEMs’ evaluation of manufacturing strategies.

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