In June of this year, a number of electronics industry news publications (see examples here, here) cited a published electronics manufacturing services (EMS) industry report stating the growth rate for EMS for 2008 was 12.5%. The publications also stated the projected 5-year growth prospects for EMS came in at 8% compound annual growth rate (CAGR).
VentureOutsource.com thought both figures were a bit high. In reviewing our research, we also reached out to Michael Palma, senior research analyst electronics manufacturing services and consumer device semiconductors with IDC.
Palma has a revised growth rate of 5.1% for the EMS industry in 2008, down from an initial 7.2% growth rate. “Even the named companies only turned in a annual growth rate of 5.5%”, says Palma.
“The overall growth rate also includes the results of the smaller EMS firms that were more deeply impacted by the economic slowdown.” Palma went on to say “the two key end-market segments, computers and consumer devices, which account for two thirds of EMS revenues, were both off significantly, with the consumer device industry revenues actually contracting. Therefore, it appears the 12.5% annual growth is too high.”
As for EMS 5-year growth prospects, Palma had more to say.
IDC feels the EMS industry’s 5 yr CAGR will be just over 1% and not 8%. By 2013, the EMS industry should grow revenues to $303.5 billion from 2008. In stating so, Palma’s factoring in some assumptions:
- A bad ’09 as consumer spending evaporates and capital spending contracts
- A better 2010, as the economy starts to recover and the EMS industry revenues should show a slight improvement from 2010
- Better growth rates in 2011 as demand returns to most market areas, though at likely lower levels than previously seen in key computer and consumer market segments
He respects opinions by other analysts but, IDC feels the report cited earlier is ‘off a bit’ when it comes to assessing the size and momentum of the market. “I think they are too optimistic on the recovery”, says Palma.
Worldwide EMS industry revenue forecast 2005 to 2013
IDC says the recession will drive down industry revenues by $37 billion in 2009, a -12.9% contraction.
The EMS sector generated $167.1 billion in revenues for 2008, representing 58.5% of the overall industry.
Additionally, the diversified revenue sources for the EMS sector should help it weather the recession slightly better than the ODM sector, but in the end EMS will also grow at a slightly slower pace as some product shift to ODMs and as ODMs are focused on faster growing end-markets.
Original design manufacturing (ODM)
The ODM sector, with a narrow revenue stream based primarily on mobile PCs, generated $118.7 billion during 2008, just 14.3% larger than the previous year, on a sharp decline in consumer revenues.
The recession should cause ODM revenues to fall by -14.7% in 2009, despite the emergence of the netbook.
The lack of diversification in revenue sources, combined with falling prices in their core business areas, lead to ODMs falling further and taking longer to return to growth and, in the end, limit future growth rates through 2013. 2013 ODM revenues should reach $126.1 billion, at a CAGR of 1.2%.
Naturally, events in industry and unforeseen financial / market changes that take place after publishing this article might make all of the above commentary less noteworthy.
We just wanted to bring into the fold another perspective for our readers on how 2008 ended, what we see this year – and beyond.
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