Six Months of Pain, Six Months of Recovery for Contract Manufacturing Tweet

But 2010 is off to a good start as long as the economic time bombs are held at bay.

iSuppli Corp. estimates the global electronics contract manufacturing industry in 2009 shrank to $261 billion, down $40 billion, from $301 billion in 2008. However, it should be noted that senior managers at most Electronics Manufacturing Services (EMS) and Original Design Manufacturing (ODM) providers effectively adjusted global cost structures as the Great Recession took hold.

During the first six months of 2009, additional restructurings in plants and personnel were needed to offset the pre-existing conditions that continue to haunt the industry, such as excess capacity and low margins. Furthermore, solvency concerns faded as contract manufacturers quickly transformed inventory into cash and paid down debt burdens thanks to revitalized orders from OEMs.

Once demand stabilized in the second quarter, a return to growth for EMS/ODM occurred. However, it should be noted that the rate of growth among the sectors varied widely.

While the ODMs continued to capitalize on the macro trend to mobile computing, the diversified EMS growth rate was rather subdued given the market rebound. For example, during the third quarter of 2009, the Top-10 ODM and EMS providers experienced sequential sales increases of 22 percent and 11 percent, respectively.

Going into 2010, several trends will impact the EMS/ODM industry.

The year is starting on strong note, with indications that OEMs are engaging in new programs to outsource manufacturing to contractors. Additionally, more consolidation among contract manufacturers will occur in 2009, improving conditions for the remaining players.

However, there are also several potential economic time bombs that could trigger a dip in mid-2010 that would ultimately impact this volatile industry.

Labels: