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Electronics Production | May 18, 2009

Has the EMS/ODM Industry Hit Bottom?

Despite optimistic remarks from Electronics Manufacturing Services (EMS) providers and Original Design Manufacturers (ODMs), the global contract manufacturing industry is unlikely to experience a dramatic recovery in the near-term, according to iSuppli.
“Recent positive commentary from the contract manufacturing industry has caused equity prices for the leading EMS/ODM providers—Foxconn, Flextronics, Jabil and Sanmina—to shoot up by 36 percent to 180 percent during the past 60 days,” said Adam Pick, principal analyst for EMS/ODM services, for iSuppli. “For example, Jure Sola, Chairman of Sanmina-SCI, recently stated, ‘We are cautiously optimistic maybe the worst is behind us.’

“However, while there are some mildly encouraging signs, iSuppli believes it isn’t wise to call the market bottom in the contract manufacturing industry at this time. iSuppli’s latest research indicates that some fundamental issues—including OEM demand levels, excess capacity, margin erosion and solvency concerns—may inhibit a quick turnaround for most EMS/ODM players.”

Having said that, there are some small signs of improvement in the EMS/ODM industry. Revenue for the Top10 EMS providers declined by 16% in the first quarter of 2009 compared to the same period in 2008. This is an improvement from the 18% decline in the fourth quarter of 2008. When will the EMS/ODM industry hit bottom and commence a real recovery?

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