Even given that all business risk projections suffer from considerable statistical inaccuracies, this looks to be good news indeed. (see chart.) Nevertheless, Charlie Barnhart & Associates LLC (CBA) continues to counsel caution for CY2010 as most of the EMS industry (particularly in the Contract Manufacturing sector) is far from recovering past losses and remains in less than a fully actualized business state.

This situation is further compounded by the flat to mid-single digit revenue projections for CY2010. Not exactly a robust environment for recovery.



Additionally, and while admittedly anecdotal in nature, CBA has also noted and is concerned by what appears to be an escalating level of atypical "actions" (or perhaps more accurately unexpected negative "re-actions") by the Chinese National Supply base, including many of the Taiwanese ODMs, in response to fairly typical requests by the international OEM community (to be notices on items like push-outs, reschedules, expedites, cost-reductions, etcetera).

"Our guess, is that these re-actions may be a consequence of a number of interlaced factors that amalgamated over the boom period but became a source of exacerbation during the economic downturn (including but not limited to: the increasing cost and competition for skilled labour in the Eastern River Delta regions, the current round of escalating expectations by Western OEMs relative to flexibility, service and support, the impact/cultural dynamic associated with the implementation of Western CSR & the new Chinese Labor Law, and lastly (but by no means least) the national realization that much of China’s commercial enterprise is functionally unaccountable (i.e. it’s estimated that over 30K companies [or perhaps more accurately the owner/mangers along with the work capital of these companies] simply "vanished" during the economic downturn of 2009)", the market researcher states in a release.


Here are the primary risk factors CBA has identified as impacting CYQ1 2010:

1. On-going supply failures associated with issues related to inappropriate construction of the demand/supply solution (i.e. FIT: Flexibility, Integration and Timing).

2. Problems associated with the ongoing consolidation of capabilities at all Tier Levels within both the CM & ODM space.

3. The probability of additional enterprise failure at all Tier Levels within both the CM & ODM space.

4. The significant ongoing shift in the Business Model of Tier I CMs.

5. The probability of a shift in the business and pricing practices of Chinese National EMS (considered to be >80% probability in CY2010).

6. Continuing pressures related to CSR, Cost of Energy, IP Protection and Global Trade policies.
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The Composite Business Risk (CBR) indicator of consultants Charlie Barnhart & Associates is an estimate of the overall supply risk in the global EMS sector; it includes among other things monetary exchange, economic forecasts, infrastructure scalability, cost & availability of resources (including energy), outstanding regulatory and geo-political issues, status of down-slope supply-chain, availability of up-slope services, cost & availability of capital, fixed asset utilization rates, book-to-bill ratios, current delivery trends, lead-time projections and a quality rating factor.

Image source: BMS