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TFI Predicts About 11% Moderate Growth for EMS/ODM
September 28, 2007 |Estimated reading time: 1 minute
ALAMEDA, Calif. Technology Forecasters Inc. (TFI) projects the EMS market to grow 11.9% CAGR through 2011, and original design manufacturers (ODMs) to see 11.4% CAGR increases. Various strategies are emerging for EMS/ODM companies to capitalize on higher profit margins, though average selling prices (ASPs) in end markets continue to challenge profitability, said Matt Chanoff, economist and senior consultant with the forecasting firm.
In its "Five Year Forecast," TFI finds that corporate spending and global demand for electronics assembly offset credit and housing issues in the U.S. and global economies. Computer, communications, and medical sectors show the highest potential growth rates for EMS and ODM business. The computer systems market remains the most important EMS driver, states TFI. Outsourcing in medical electronics is forecast to grow 8.5% CAGR through 2011. Chanoff sees increasing electronic content in the automotive sector as an indicator of higher global output for EMS/ODM companies as well.
Outsourcing will drive about 11.9% of EMS growth through 2011, though more than half of that will be attributed to Hon Hai/Foxconn, TFI finds. ODMs will see about 1011% growth due to outsourcing in the same period. Overall, outsourcing will fuel $429 billion in 2011 revenues, up from about $247 billion in 2006. Where outsourced EMS business fell 55% to Asia, 25% in the Americas, and 20% in Europe in 2006, the 2011 market will find 69% of production in Asia, with the Americas at 17% and Europe at 14%.
TFI reviews strategies to improve profit margins in EMS/ODM with mixed results. Companies in the space are following various paths to build profitability. Some assemblers are emulating the Hon Hai/Foxconn roadmap of vertically integrating business. Others pursue higher average margins found in medical and automotive electronics, and build alliances into these sectors. Higher-margin niches within end-markets, such as servers rather than laptops in the computing sector, offer potentially higher profits. Some EMS/ODM companies are pursuing higher-margin service offerings, such as prototyping and after-sales support.
The "Five Year Forecast" reports that ODMs in particular are experiencing challenges in diversifying product offerings. ODMs entering own-brand manufacturing ventures have been retarded by customer hesitancy, and generally will separate the own-brand business from the ODM's manufacturing. ODM production in 2006 hit 96% in Asia, 2% in the Americas, and 2% in Europe. In 2011 this will be redistributed slightly, with 90% remaining in Asia and 5% in the Americas and in Europe.
For more information on TFI's "Five Year Forecast," visit www.techforecasters.com.