While the global electronics manufacturing services (EMS) industry has much to celebrate, including a return to growth in 2010 and another expansion expected in 2011, a host of supply/demand and macroeconomic uncertainties are clouding the outlook for next year, according to the market research firm iSuppli Corp. , now part of IHS Inc. (NYSE: IHS).
iSuppli believes the EMS market should report a very solid fourth quarter, which will allow the industry to end the year with revenue of $190 billion, up 33 percent, from $140 billion in 2009. This will mark the first year since 2007 when EMS industry revenue will rise on an annual basis. Because of this growth, profitability has returned for many companies. These profits, combined with lower costs, have provided a much-needed lift for the EMS industry.
Unfortunately, as iSuppli has written in the past, this tide hasn’t lifted all boats equally -- with the largest companies disproportionately benefitting from the growth in 2010. (See: Hon Hai’s Huge Size Redefines EMS Hierarchy.) Although 2010 brought improvements for smaller, more regionally focused EMS providers, these companies still faced a range of challenges for the year, including divergent trends in regional demand between Western and Eastern economies as well as a difficult procurement environment that at times favored larger suppliers.
iSuppli forecasts EMS industry revenue in 2011 will increase by slightly less than 10 percent, reaching about $202 billion. The estimates assume that the Asian market will rise by more than 10 percent, driven by yet another year of strong growth in China, making it the world’s fastest-growing EMS region in 2011. The next-fastest growing region will be the Americas, where revenue will expand by more than 7 percent in 2011.
One of the biggest unanswered questions facing the EMS industry heading into 2011 is the state of demand in Europe. Will austerity measures in the public sector reduce demand for technology, communications and military products as governments work to reduce public sector indebtedness? Can consumer demand hold up in the face of concerns related to sovereign debt levels, still-stagnant employment growth and a contraction in the public sector?
Another major concern is whether China really can maintain double-digit growth and create further demand for Europe’s export-oriented companies serviced by the EMS industry. Will component supply tightness in 2010 turn into a glut in 2011 and what will that mean for contract negotiations?
While the answers to these questions remain unknown, one thing is certain: 2011 is unlikely to be a repeat of 2010.
— Thomas Dinges is the EMS and ODM analyst at the market research firm, iSuppli Corp., in El Segundo, Calif. For more information on the contract manufacturing market, see Dinges’s new report: EMS and ODM See Near-Term Pause on Road to Recovery.