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Is the EMS Industry Facing Another Recession?

Despite rising concerns in the electronics manufacturing services (EMS) business about a possible return to the disastrous market conditions seen in 2008 and 2009, the industry appears to be better prepared for a downturn than it was three years ago, likely mitigating the impact of a potential slump.

Just a few months ago, economic headlines were filled with talk of inflation fears, soft landings, and more modest growth. Concerns about another recession in the United States or Europe generally were not on the front pages. What a difference a quarter makes. Today it's hard to find economic news that's not gloomy.

Within the EMS industry, the talk is about volatility in original equipment manufacturer (OEM) customer forecasts. OEMs are dealing not only with softer consumer spending in several major regions but also with weakening government expenditures in key product categories such as data processing equipment.

Such developments obviously have stirred fears among many about whether the industry is set to repeat the downturn of 2008-2009, a miserable period no one in the EMS industry wants to relive. Billions of dollars of assets were written down. Tens of thousands of employees were laid off, and hundreds of thousands of square feet of manufacturing facilities were shuttered.

Given the dot-com bust at the start of the last decade, when a similar situation occurred, the current conditions have stoked even stronger fears that the industry is perched upon yet another cliff. None of us like to hear “It’s different this time,” as if something somehow will prevent the economic cycle from imparting its downward pull on revenue and earnings across the industry. However, there are a few things that really are different this time.

First, there has been a short lag between the last downturn and what could be another one. This means contingency plans remain close at hand, unlike 2008-2009, when these strategies were consigned to dusty old textbooks.

Second, capacity expansions over the past several years have been much more muted than they were in the period leading up to 2008-2009.

Third, the industry as a whole has done a better job in diversifying its revenue base. Consumer- and enterprise-oriented products still represent the bulk of EMS revenue. However, revenue from the industrial market has grown substantially during the past several years. This is important because the industrial market remains considerably underpenetrated in terms of outsourced contract manufacturing, and a slower economic environment could actually accelerate some plans to increase outsourcing to EMS providers.

In the current pessimistic environment, there isn't much of a silver lining amid the clouds. But changed EMS market circumstances mean the impact of a potential downturn may be somewhat less severe than it was back in 2008-2009.

— Thomas Dinges is the EMS and ODM analyst at IHS. For more information on the contract manufacturing market, look for the upcoming IHS report “EMS and ODM Merger and Acquisition Activity Starting to Increase: Is This the Beginning of Something Big?” For media inquiries on this report, contact Jonathan Cassell, editorial director and manager of public relations, at jonathan.casell@ihs.com. For nonmedia inquiries, please contact .

4 comments on “Is the EMS Industry Facing Another Recession?

  1. Himanshugupta
    September 27, 2011

    “This means contingency plans remain close at hand, unlike 2008-2009, when these strategies were consigned to dusty old textbooks”, is this a soft way of saying that companies are more experienced and willing to layoff more workers as a measure of cutting cost? Some industry such as solar are already in oversupply and we have seen the results as companies are shutting down plants and cutting their workforce. Do you think EMS also are in the danger zone? Last year we saw hugh profits and long supply time so EMS expanded their production to meet demands.

  2. saranyatil
    September 28, 2011

    As of now looks like even EMS is also heading towards the danger zone. Many companies are shifting their product launch in turn all other process are slowing down.

  3. EEB
    September 29, 2011

    As a supplier to EMS SMT we find that during economic squeeze we are alot more active in selling used or almost new parts. You just have to be constantly adapting and keeping an eye on costs.

  4. Wale Bakare
    October 2, 2011

    World economy activities have been on low ebb. The major problem with that is buyers, sellers, consumers and investors have lost certain amount of confidence in spendings on general note.

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