After 4.7% growth in 2011, contract manufacturing revenue this year is expected to decline by 1% to $357bn in 2012. says IHS.
Both the electronic manufacturing services ( EMS) and original development manufacturing (ODM) segments of the industry are not projected to perform well for this year.
Revenue in the EMS sector for 2012 will be practically flat at $207.5bn; revenue in the ODM sector will shrink 2.3% to $150bn.
Last year, EMS had 10.1% growth on top of a 34.7% increase in revenue during 2009. However, the ODM market already was struggling in 2011, with a 1.7% decline.
“The paramount factor affecting the electronics contract manufacturing business in 2011 is the sovereign debt crisis in Europe,” says IHS’ Thomas Dinges, “Europe remains a key market for products built all over the globe. If Europe goes into recession because of its financial problems, and the recession then spreads to the United States—already hobbled by high unemployment and assorted economic travails—there will be very little that the global contract manufacturing industry can do, other than hope that the pipeline of new business remains strong and that the price increases enacted this past year serve as a buffer to prop up margins somewhat.”
Overall expectations point to another round of high single-digit growth this year in China, which already accounts for more than half of the contract manufacturing industry’s aggregate revenues.
China is also the world’s largest consumption market of smartphones and PCs—some of the end products it helps produce—so China’s pace of growth in those markets will determine how quickly those areas expand.
China, though, is no longer the nexus of cheap labour, says IHS, in 2011 China had wages averaging $2.19 for each worker per hour, which is rising at nearly 15 % per year.
Despite this, IHS does not believe another region in the world is likely to emerge as a new low-cost manufacturing location.
In 2012, HIS predicts that:
The soundness of companies and their balance sheets will continue to be scrutinized after the bankruptcy filing in October 2011 of major player Elcoteq from Finland;
There will be continued pressure on suppliers to ensure among customers that they are in compliance with all local labour laws given the recent announcement by Apple to allow outside monitors into its supplier facilities;
The continuing popularity of smartphones and tablets means contract manufacturing in these areas can be expected to help compensate for slow growth elsewhere in the industry;
A shift toward fewer product offerings in the notebook industry also will lead to improved inventory velocity throughout the besieged PC notebook supply chain;
and
Lower component pricing this year should help improve industry margins for the near term.
