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 a webinar today, Adam Pick, who heads the firm’s EMS/ODM research, cited the uncertainties of the recession, the government stimulus plan, looming mortgage resets, prime mortgage foreclosures, and continuing decisions by OEMs to pull assembly in-house.

“Subprime resets will go through a second phase in 2011,” Pick said. “Over $550 billion in mortgages will need to be reset.”

Hope that industrial OEMs would lead the next wave of outsourcing has diminished. “We don’t see it,” he said.

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?”

Nevertheless, Pick did allow that corporate guidance among top tier EMS firms could be tied to cautious management or even “sandbagging.”

Interestingly, while companies like Celestica are indicating reams of excess capacity – the firm noted 50% capacity utilization during its most recent quarter – many have improved balance sheets versus the last tech downturn. “It doesn’t look like any Tier 1 EMS firms will go bankrupt,” Pick said, adding there is “some possibility” for M&A because of depressed valuations.

Pick singled out Elcoteq (down 55% year-over-year in US dollars) and Benchmark Electronics as companies that are weaker than their competitors.

Much of Pick’s data was tied to performance by publicly traded EMS companies. The tier 2 segment, which is less dominated by public companies, is “very interesting,” he said, as certain players are bucking the overall trend.

On the ODM front, about 80% of ODMs beat (low) expectations in the first quarter, Pick noted, but demand is volatile, with January down 30% before February’s climb. ODMs are responding by targeting other product sectors; for example, some notebook ODMs are now making LCD TVs.

“We think that recovery for ODMs is warranted, and we hear of capacity expansion,” Pick said, citing Compal, whose delayed expansion in Vietnam is now on track for year-end.

But even there Pick hedged his bets, saying ODMs might not know what’s in store. “We really think there is some headwind here for these providers. Even with the return of some demand, there’s been some component shortages. The ODMs have never really managed through a severe recession.”