Electronics Production | June 20, 2011

Global ODM-market to reach USD 161.1<em>bn</em> by 2017

Although the prolonged severity of the economic slowdown and depressed manufacturing scenario across key industry segments have elicited decline in revenues for original design manufacturing (ODM) in 2009, the market nevertheless is expected grow at a steady pace over the next few years and register USD 161.1 billion by 2017.
Growth in the market will be especially driven by increase in manufacturing activity across industries as a result of post recession resurgence in consumer demand for manufactured goods and OEM’s renewed focus on creative designs, new product form factors, and technology specifications. Robust growth prospects from Asia-pacific also augur well for the market.

The manufacturing culture has evolved over the decades, from centralized production to gradual decentralization and disintegration of vertical manufacturing processes. Strategic outsourcing has diversified supply chain functions in line with the concept’s evolution from outsourcing parts and components to ideas. This outsourcing of research and design ideas have brought into the spotlight original design manufacturers (ODM).

Manufacturing systems revolving around design and production have splintered over the decades with design knowledge increasingly being outsourced to original design manufacturers (ODM). As a result there has been a steady rise in the OEM–ODM contracts. Numerous advantages, such as, improved lead times, access to broader design experience (i.e. architecture design, mechanical and electrical engineering), flexible system to accommodate design changes/modifications, among others have encouraged Original Equipment Manufacturers (OEMs) to gravitate towards ODMs.

Given that fortunes in the ODM industry are closely tied to industrial, automotive and consumer electronics, wireless & wired communications, and data processing technologies, which have witnessed significant disruptions in business activity/prospects in 2008 & 2009 due to economic recession, the global Original Design Manufacturing market too suffered a major set back during the period. Bad economy and deteriorating business climate resulted in OEMs scaling back production as a knee jerk reaction to the soft business environment prevalent in most end-use sectors.

Spooked by the financial crisis, lack of credit availability, and muted consumer demand for electronic products such as, personal computers, and cellphones, manufacturers reined in capital spending. Cut backs on consumer device manufacturing capacity expansion, reduced capacity utilization and closure of plants, directly sliced through ODM revenues.

In the IT industry, including networking and servers & storage, reduced corporate/enterprise IT budgets, as a result of poor financial strength displaced ODM opportunities at large. The manufacturing sector additionally has been the worst hit by the recession with the slowing down of economic activity including reduced manufacturing and commercial activity impacting industrial production.

Reduced capacity utilization, and excess capacity at OEMs resulted in OEMs resorting to in-house design and development this reducing business orders for ODMs. The telecommunication industry, like all other industry was also acutely impacted by the crisis. The unusually pronounced length, breath, depth and magnitude of the recession has taken a large bite out of carriers’ revenues, and profitability. Decline in consumer usage of telecommunication services, lower levels of new subscriber additions, falling average revenue per user, traffic reductions have distorted the business climate over the last two years.

Additionally, drying up of the debt market and the resulting shortages in capital investments, played instrumental roles in derailing network coverage expansion, and upgradation schedules. The gloomy business environment in the telecommunication industry has had a trickle down impact on telecommunication equipment and on the OEM activities in this space. ODMs as a result witnessed hurting fall in order inflows during the period 2009.

With recession now having played out its part in full proportions and the manufacturing activity in most of the industry segments having hitting rock bottom, the worst is now over for ODMs, as evident by the improvement in its revenue growth during 2010. A quick resurgence in growth fundamentals post recession, such as recovery in GDP growth, improvement in consumer demand for end-products and subsequent rise in production at OEM level, and general increase in business confidence, will help drive increased ODM contracts over the next few years.

Stimulus packages offered by governments across the globe to infuse vigor in the ailing manufacturing sector will additionally drive increased production, thereby creating opportunities for ODMs. With companies waking up to the fact that undeterred focus on long-term plans is critical in warding off the impact of the economic slowdown, creative designs, new product form factors, and technology specifications will continue to come to the market across different product segments, thus creating the need for ODM services.

Digital consumer electronics products in particular is forecast to witness innovation in form factors in the upcoming years and this thereby bodes well for ODMs, who can expect new design orders to come their way. Efforts by OEMs to leverage ODM services to tap low cost product markets in emerging countries and simultaneously maintain competitiveness and profitability, also bodes well for the future of the ODM market.

As stated by the new market research report on Original Design Manufacturing, Asia-Pacific remains the most prominent regional market for original design manufacturing services, having a stranglehold on the global market. Growth in the Asia-Pacific market is especially driven by the robust production scenario in the region, particularly Taiwan and China, thanks to increasing demand for electronic peripherals, computers, networking and telecommunication equipment in the region.

Computer industry represents the largest end-use sector for ODM services. Electronic Peripherals sector is one of the key growth areas for ODM services, with revenues from the segment waxing at a CAGR of about 5.9% over the analysis period.

Major players in the marketplace include Arima Group, ASUSTek Computer Inc., Compal Electronics Inc., Elitegroup Computer Systems Co. Ltd., Flextronics International Ltd., Foxconn Electronics Inc., Inventec Corporation, Lite-On Technology Corporation, MiTAC International Corp., One & Co, Qisda Corporation, Quanta Computer Incorporated, Sanmina-SCI Corp, Venture Corporation Limited, Wistron Corporation, among others.

Source: Publications
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