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Electronics Production | July 24, 2007

EMS &amp; ODM Convergence:<br>Where Lies the Future?

The electronics contract manufacturing market continues to evolve as electronics manufacturing service (EMS) providers and original design manufacturers (ODMs) diversify and seek new markets.
Current market dynamics point to further outsourcing by the original equipment manufacturers (OEMs) and as a result, both EMS providers and ODMs will enjoy steady growth during the forecast period.

Compared to the EMS market, ODMs have witnessed higher growth over the last five years. New analysis from Frost & Sullivan, World EMS Provider and ODM Convergence Markets, finds that the world EMS market earned revenues of $190.00 billion in 2006 and estimates this to reach
$387.42 billion in 2013. Additionally, the world ODM market earned revenues of $100.65 billion in 2006 and estimates this to reach $219.00 billion in 2013.

"Increased outsourcing from automotive and communication industries along with new outsourcing opportunities from the aerospace and defense (A&D), medical and industrial applications industries will likely drive the future growth of the EMS market," notes Frost & Sullivan Research Analyst
Lavanya Ram Mohan. "Although current EMS penetration within niche markets is not significant, this trend is likely to change during the latter part of the forecast period. Success lies in penetrating the niche markets and capitalizing on the existing untapped potential."

Design expertise represents a primary growth factor for ODMs, especially in markets such as consumer electronics, computing, PC and servers. Oftentimes, OEMs seek ODMs as strategic design partners as product design is a key differentiator in these markets. ODMs' ability to offer design solutions with high quality and low cost options will maintain the market's high growth rate during the forecast period.

However, increased opportunities bring about a proportional increase in the level of internal competition. Average selling prices (ASPs) in the traditional markets have declined and EMS providers often find themselves squeezed to provide the lowest cost. With competition expected to further intensify, EMS providers can no longer remain complacent based on their manufacturing, engineering, design, or supply chain expertise.

"Market saturation within traditional markets has encouraged EMS providers to diversify their services and offerings," says Mohan. "In line with this trend, EMS providers will likely establish partnerships with ODMs and have even created dedicated ODM resources such as centers of excellence offering design, testing, and R&D services."

Going forward, EMS providers need to offer differentiated services to OEMs, while simultaneously retaining the current level of services. In particular, EMS providers offering design services can increase revenues and profits substantially. EMS providers will likely benefit from the
considerable growth potential within supply chain related operations.

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