Mixed Signals for EMS in 2011

Since electronics manufacturing services (EMS) providers account for such a large part of the supply chain, their expectations for 2011 are a bellwether for the rest of the industry. So far, publicly traded EMS companies seem more optimistic about 2011 than some analysts, who caution differences in regional growth projections and a challenging procurement environment might dampen sales growth for next year.

“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,” writes Thomas Dinges, EMS/ODM analyst for market researcher iSuppli.

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.

In the short term, {complink 2862|Jabil Circuit Inc.}, which reported record revenue $4.1 billion for its Q1 FY 2011, (ended Nov. 30, 2010) expects its second quarter to grow by as much as 30 percent year-over-year. Jabil notes that it has been undergoing some structural changes, focusing on differentiated services and capabilities, controlling costs and improving productivity, which had a positive impact on its most recent results.

One of the biggest unanswered questions facing the EMS industry heading into 2011 is the state of demand in Europe, according to iSuppli. 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.

In the past, EMS companies have tried to improve profit margins and secure their market position by digging deeper into supply chain management functions typically handled by distributors. This hasn't been the trend of late, according to Harley Feldberg, president, {complink 577|Avnet Inc.} Electronics Marketing Global. “EMS companies still buy most of their components direct [from suppliers] and in my opinion, our relationship with top management [at EMS companies] is quite good,” he says.

“There will always be a degree of tension because we both sit between suppliers and OEMs, but I think the reality has become clear that they make their living from a small set of customers and we have a broad customer base,” says Feldberg. While the largest EMS providers will always buy direct, “for anything other than the highest volumes, distribution is still a good model,” for EMS, he adds.

5 comments on “Mixed Signals for EMS in 2011

  1. DataCrunch
    December 23, 2010

    Hi Barbara, I have mixed feelings too about the electronics industry going into 2011.  I am curious to hear the news coming out of the CES event in Vegas in early January.  In the meantime, my 2011 outlook remains cautiously optimistic.

  2. Taimoor Zubar
    December 24, 2010

    I think China will continue to play a major role in the EMS industry in 2011. Given the state of their economy, I reckon they will maintain the same growth rate, if not achieve a higher one.

  3. kumar1863
    December 26, 2010

    China is coming as dominating country in EMS industry for the past two years. Now it's really the time for U.S to plan and implement to become acquire No. 1 position. U.S government is also supporting the industries and investors to win race. 

  4. mfbertozzi
    December 26, 2010

    Within EMS chain, one step is products' assembly. New Adventure Reasearch Corportation  reported so far the direct labor hourly rate (referring to Electronic Market) is about

    -10$US in Central Europe,
    -6 $US in Western Europe,
    -3$US in Eeastern Europe
    -1$US in China.

    Possible scenario for “unanswered question in 2011” is products' assembly is going to move in Eastern Europe and there several countries are encouraging and supporting this by foreign agency. An example is “Invest in Macedonia”.
    Have you heard similar stories too?

  5. Backorder
    December 31, 2010

    I dont know how much importance we can attach to the forecasts from EMS as against those of the semiconductor vendors. EMS have a simples model of operation, stable revenue streams and semicon generally have more concerns about how the market will behave. I believe the signals coming out of EMS should always be viewed with the semiconductor reports in perspective.

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