What's ahead in 2011

“We don't like to be the wet blanket on the industry, but we are seeing pockets of softness in certain sectors and geographies", Charlie Barnhart explained. “It won't be a catastrophic, ‘off the cliff’ event, like in Q1/2 2009, but there will be certain areas that are substantially more at risk than others, due to sovereign debt issues in certain U.S. states and Europe; inflation and rising costs in Asia and South America, and market sectors in the U.S. like mil/aero that will see demand drop off significantly this year." Other industry trends outlined by CBA: - Regionalization continues to gain momentum for the 8th straight quarter, defined as 'build in the region, for the region'. - Chinese labor rates have increased and are forecast to continue to increase at least 1%/month for the next 4-5 quarters. - The manufacturing Solution Cycle, which CBA defines as the industry average lead time (measured in calendar days from order release w/prior forecast to FOB suppliers dock), has increased during the past 4 quarters but is expected to return to historic levels in the first half of CY2011 - CBA continues to predict that the rate of growth in the EMS sector will reach an apex by the end of the 2nd quarter of CY2012 but does not believe that growth will stop or reverse course for the foreseeable future - Robotics is the next industry sector opportunity for EMS. Mil/aero is not. "One thing we counsel: unless you have more than $50 million in spend, there's no sense in going to China", Mr Barnhart noted. "Also, there's always considerable ‘tribal knowledge’ that is hard to replace when you outsource manufacturing, especially to another geography. You can't rush to shut down the internal lines until you’ve tested the new solution thoroughly. In this situation, the OEM learned that lower cost often comes at a very high price, ironically", he concluded.