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Electronics Production | August 21, 2008

EMS shake-out on its way?

While growth in the EMS market is predicted to slow down, companies – such as Celestica, Sanmina and Elcoteq – are said to struggle to stay in the game.
Many big players in the industry – such as Foxconn and Flextronics – are predicted to drive consolidation efforts forward to boost top customers. However, smaller EMS-providers will have a hard time with staying in the game.

According to the market researcher iSuppli, EMS-providers reported a collective revenue of $306 billion in 2007. But that is said to change this year, with growth slowing to one-digit figures and competition becoming fiercer. While big EMS-providers will find it hard to maintain their current growth rate, mid- to low-tier companies will face acquisition pressure, reports Reuters. Many have to turn to niche production to survive. However, many will also be driven out of business.

The biggest EMS-provider – Taiwan based Foxconn – reported a 75% growth in 2005, which will be down to 20% (forecasted) for 2008. According to Reuters, Foxconn’s margins have also dropped to 9.7% last year from 25.2% in 1999. However, Foxconn has kept a low profile when it comes to acquisitions – so far. Flextronics – the second biggest player in the industry – has been very aggressive in it pursuit of acquisition targets, with its landmark $3.6 billion acquisition of Solectron in 2007.

However, big players too are not immune to changes in the industry. Foxconn issued a profit warning last week, which subsequently sent the company’s stock in a downward spiral, said Reuters. Experts believe that potential acquisition targets could be Taiwan based HTC or Elcoteq.

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