14
STATISTICS
Global contract manufacturing
transforms by 2013
THE global electronics contract
manufacturing (CM) industry is undergoing
a period of deceleration and consolidation,
phenomena that will transform the market
by 2013 as competitors are forced to
rethink how they deliver value to their
customers, according to iSuppli Corp.
Revenue for the global CM industry,
consisting of Electronics Manufacturing
Services (EMS) and Original Design
Manufacturing (ODM) providers, is set to
expand to $432.3 billion by 2012, rising
at a Compound Annual Growth Rate (CAGR)
of 7.2 percent from $305.5 billion in 2007. iSuppli Figure – WW CM Revenue Forecast
While a $126.7 billion gain in revenue
during a five year period may sound like an examination of possible acquisition targets providers that vary between fully
fantastic growth, it actually represents a becomes a top priority for larger companies.” outsourced models and total control
major slowdown compared to years past, In particular, Sanmina, Celestica and models. In a fully outsourced model, the
on a percentage basis. Global CM revenue Elcoteq suffered 2007 revenue decreases EMS provider is responsible for most
rose at a CAGR of 15.5 percent from of 6.8 percent, 8.4 percent and 6 percent, supply chain activities. Conversely, in a
2002 to 2007. The industry CAGR respectively. iSuppli’s research indicated total control model, the OEM retains
amounted to 49 percent during the 1990s. that 88 percent of the world’s EMS/ODM control of most supply chain activities,
“Several factors are inhibiting the executives believe that by 2013, one or except for the actual manufacturing.
revenue surge of the past 20 years,” noted more of these companies, Sanmina, Often, hybrid models that are a mix of
Adam Pick, principal analyst, EMS/ODM Celestica and Elcoteq, will not exist. the fully outsourced and total control
at iSuppli. “Those factors include the Given the slowed growth in the CM strategies have been developed to suit the
statistical law of large numbers, which market, there appears to be a fundamental unique manufacturing and service needs of
makes it difficult for such a large market inflection point in the industry. Today, more the OEM. Given these approaches above,
to expand much on a percentage basis. than ever, leading CMs, their customers OEMs often find themselves in a state of
Other factors include a slowdown at leading and their suppliers are talking openly confusion. In fact, when iSuppli
EMS provider Foxconn, shifting EMS/ODM about their mistakes in the past and their commences an EMS/ODM supplier
business models, new OEM procurement strategic opportunities in the future. selection process with an OEM, the first
strategies and OEM/CM asset transfers.” Some of the comments iSuppli has collected questions asked by the OEM are:
A major consequence of this slower regarding the CM business are as follows:
growth is continued consolidation among ● What is the right engagement model for us?
the world’s top CM providers, as the ranks ● “PCB assembly is not a winning formula,” ● Which activities should we outsource?
of the competitors thin out. Revenue said a representative of one OEM. ● Where are our organisational gaps?
consolidation among the leading EMS and ● “Simple manufacturing is an entry
ODM companies accelerated during the ticket, but it won’t get you anywhere,” Several OEMs interviewed by iSuppli
2004 to 2007 time frame, as the observed an executive at a second tier expressed their desire to alter their
industry’s global manufacturing capacity EMS provider. “closed-system” approaches by which they
remained underutilised. ● “I don’t think anybody is excited about leverage the manufacturing assets of EMS
The latest development in this winning low margin programmes simply and ODM providers.
consolidation trend was the news in June to fill capacity,” noted a representative Since the technology recession of 2000-
2007 that EMS provider Flextronics would at a semiconductor supplier. 2001, the EMS/ODM industry has
acquire its former rival, Solectron. ● “I would say that manufacturing repeatedly been called “volatile” and
It appears that Wall Street may rally processes throughout the industry are “evolutionary” by analysts. During the
around the idea that consolidation is stabilised and somewhat standardised. next five years, iSuppli expects those
beneficial for the global CM industry, Differentiation will not result from monikers will continue to populate
particularly the more troubled EMS being the best assembly house,” said an discussions about the CM marketplace.
providers. Following the Flextronics/Solectron executive at a tier one EMS provider. That said, there are many opportunities for
merger announcement, Celestica’s stock this unique breed of outsourced providers
bounced up 11 percent. The outcome of this new openness is to address newer markets such as medical,
iSuppli Corp. believes that consolidation that CMs are re-examining their aerospace, industrial, and military, offer
will indeed continue during the next five relationships with their OEM customers. value add services and extend their value
years and may even accelerate. iSuppli’s recent interviews with CM propositions to garner more spend and
“As many of the larger CMs attempt to executives revealed that these relationships enhance shareholder valuations.
retrench and right size their businesses, are among their top concerns.
revenue growth has become stagnant or OEMs now employ a wide range of Information kindly supplied by iSupply
even negative,” Pick said. ìBecause of this, potential engagement models for their CM
www.euroasiasemiconductor.com September 2008
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