Growth rate for electronics outsourcing to slow

Slower growth means more consolidation in the EMS industry

By Jim Carbone -- Purchasing, 8/7/2008 1:28:00 PM

While the growth rate of the global electronics outsourcing market will slow down, total revenue will still rise from $305.5 billion in 2007 to $432.3 billion in 2012, according to a new report by researcher iSuppli.

The electronics outsourcing market, which consists of electronics manufacturing services (EMS) providers and original design manufacturers (ODM), will post a 7.2% compound annual growth rate through 2012. The growth rate represents a major slowdown compared to years past, on a percentage basis.

Global electronics outsourcing revenue rose at a CAGR of 15.5% from 2002 to 2007 and industry CAGR amounted to 49% during the 1990s.

Several factors are inhibiting revenue growth, says Adam Pick, principal analyst, EMS/ODM at iSuppli. One factor is the “statistical law of large numbers, which makes it difficult for such a large market to expand much on a percentage basis.” Other factors include a slowdown at leading EMS provider Foxconn, shifting EMS/ODM business models, new OEM procurement strategies, he says.

A major consequence of this slower growth is continued consolidation among the world’s top EMS providers and ODMs.

“As many of the larger contract manufacturers attempt to retrench and right-size their businesses, revenue growth has become stagnant or even negative,” says Pick. “Because of this, an examination of possible acquisition targets becomes a top priority for larger companies.”

In particular, Sanmina, Celestica and Elcoteq suffered 2007 revenue decreases of 6.8%, 8.4% and 6%, respectively.

Also see: EMS industry grew 17% in 2007