Electronics Contract Manufacturing Growth To Slow

Worldwide revenue this year among original design manufacturers and companies providing electronics manufacturing services is expected to rise 8.5% this year.

The electronics contract manufacturing market will slow this year into the single digits after more than 30% growth last year, a market research firm says.

The contract electronics industry, which consists of electronics manufacturing services (EMS) and original design manufacturing (ODM) segments, will finish 2011 with revenue of $376.7 billion, up 8.5% from $347.3 billion last year, IHS iSuppli reported Monday. Revenue will continue to rise at annual rates between 7% and 9%, reaching $472.3 billion in 2014.

This year's growth rate is substantially less than last year, when industry revenue grew 33.4% from 2009, which was marred by the global recession that hammered the electronics industry. Contract manufacturers are now fighting over new business in the recovering economy, which is contributing to reduced profit margins, particularly for consumer-oriented products, iSuppli says.

"EMS and ODM providers with exposure to these areas have been hardest hit, while others with a more balanced end-market portfolio have fared much better," Thomas J. Dinges, analyst for outsourced electronics manufacturing at iSuppli, said in a statement.

Nearly all the largest EMS providers that serve a mixture of markets are reporting "very strong" near-term growth, as well as a widening pipeline for future business," iSuppli says. ODMs have not fared so well, since they are mostly focused on the computing and consumer end markets.

Chinese manufacturing operations accounting for 75% of the growth last year, and they are expected to continue to dominate this year. For example, Hon Hai Precision Industries, the largest outsourced manufacturing provider, reported nearly 60% revenue growth year to year in the first nine months of 2010.

Chinese contract manufacturers are expecting to benefit from the country's booming domestic economy, which is expected to grow by almost 10% this year, much faster than either Europe or the United States.

Profit margins for the industry as a whole are expected to head sideways or even downward this year, due to competition and expected increases in material costs and wages in major manufacturing centers. In 2010, only four of the largest companies across EMS providers and ODMs reported sequentially higher margins with higher revenue.

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