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Contract Manufacturers Eye Unsexy 2013

Electronics contract manufacturers will see revenues grow about 4.5 percent in 2013 to $404.5 billion, according to the latest data from market researcher IHS.

The good news is that's growth, the fourth straight year of it since the depths of the recession in 2009, when the number nestled into the trough was $260.5 billion. But the bad news is that if 4.5 percent holds up, the rate will be below 2012's results, up 5 percent to $387 million. (See chart.)

WW Outsourced Manufacturing Revenue

(Billions of U.S. Dollars)

2008 $308.1
2009 $260.5
2010 $343.6
2011 $368.7
2012 $387.0
2013 $404.5
2014 $419.6
Source: IHS iSuppli Research, Feb. 2013

I'm as pragmatic as the next guy. Growth is growth, but 4.5 percent isn't sexy; it doesn't get my heart thumping, especially in an era when more companies are leveraging the supply chain to get closer to regional customers and take advantage of cost, and especially when there's much more promise (more on that in a second).

So what's going on?

Here's IHS’s perspective:

  • The uncertainty factor. The debt crisis lingers in Europe, and the United States has yet to get its own spending house in order.
  • “The largest risk at this point is the potential for a major economic dislocation, which could easily derail market growth this year,” said Thomas J. Dinges, CFA, senior principal analyst for the IHS Outsourced Manufacturing Intelligence Service.
  • A confluence of trends will further muddy the outlook. On the one hand, OEM customers always want to cut costs; on the other hand, EMS providers want to do more with less and get inventories as lean as possible.

So perhaps this tells us what we know in our guts: We're not out of the woods, and the world's a very cautious place.

But my gut tells me something in addition to that: The electronics industry has spent the last 12 years radically restructuring how it operates. At the same time, technology has advanced so far, so quickly, that the innovation tent is now wide open to a much larger cohort of creators.

In an era of open-source software, open-source hardware, the Internet, and WYSIWYG software tools, your next-door neighbor can come up with the next hot product (and is). What gets his or her idea from concept to consumer is contract manufacturing (and its attendant design services).

OK, so that vision is a bit of stick-figure drawing, but I'm convinced we're closing in on it. That's why I think these low single-digit growth rates are going to change soon. And that gets my heart pounding.

So, what do you think about that vision? What's your feeling on how 2013 will shape up for contract manufacturers?

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