The EMS (electronics manufacturing services) industry had its highest revenue performance during 2007 than any year in its history, outpacing the record year of 2006.
Growth continued through the first half of 2008, as the 20 largest publicly traded EMS providers in the world produced a sales increase of 16.6% versus the year-earlier period.
The growth outlook for the EMS industry continues to be geographically unbalanced. According to Electronic Trend Publications, from 2007 to 2012, Asia is expected to grow at a compound annual growth rate (CAGR) of 17.2% and account for over 71% of the EMS market by 2012, as compared to 4.9% annual growth for North America and 7.5% annual growth for Europe.
The rest of the world is expected to grow at 11.6% CAGR over the same period. The key region in the Asian market continues to be China, accounting for approximately 60% of the EMS production in Asia, and together with Taiwan representing 46% of worldwide production.
By 2012 China is expected to account for 76% of all EMS output in Asia and 54% worldwide.
The Chinese government continues to provide significant incentives including tax credits, land grants, low import duties, among other advantages, which are fueling the Chinese EMS market. In addition, full private equity ownership of EMS operations is now possible and is beginning to become more popular.
As shown in the chart below, overall EMS revenue during the last 12 months (LTM) has flattened, with only Large EMS companies (greater than $3 billion in revenue) showing significant growth. Large EMS providers grew 18.8% on an LTM2008 basis versus 14.7% in calendar year 2007. (OEM Exclusive: Request list of EMS/ODM providers anywhere in China or the greater Asia region)
Revenue began to decline in the Mid Tier ($400 million to $3 billion in revenue) with LTM2008 revenue dropping 0.4%. Small Tier ($100 million to $400 million in revenue) EMS company LTM2008 revenues grew 6.8% versus 4.6% in CY2007. The Micro Tier providers (below $100 million in revenue) growth has slowed significantly to only 1.3% in LTM2008, short of their CY2007 performance of 15.6%. Longer term growth in the EMS industry will continue to be driven by end markets.
Longer term growth
In regards to long term growth, communications continues to be the end market that offers the most significant upside potential. This end market is expected to grow at a CAGR of 15.9% from 2007 to 2012. See table below. (Source: Electronic Trend Publication)
The consumer sector is also expected to show strong growth with forecasts showing a CAGR of 13.5% over the next five years. Also showing double digit growth are the computer and medical industries with expected CAGRs of 13.4% and 12.0% through 2012.
From 2007 to 2012, the annual growth rates for the automotive, defense and industrial end markets are expected to be around 8% annually. Overall, the global EMS market is expected to grow 13.5% annually from a$261 billion market in 2007 to a $492 billion market in 2012.
Growth prospects in the EMS industry remain positive over the long term. Short term, however, the recent financial crisis and potential recessionary fall out, particularly on EMS, may temporarily decrease the industry’s overall growth. This financial situation is having worldwide effects, and consequently governments are taking swift action. The effectiveness of these actions on curtailing the economic slowdown is uncertain.
Source: Lincoln International, VentureOutsource.com
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