Tough times ahead for EMS

Malaysia – The electronics manufacturing services (EMS) industry will have it hard next year according to information technology, telecommunications and consumer technology market research and analysis firm International Data Corporation (IDC).

The slow down in end-markets can also be attributed to new entrants from specific market segments like Flextronics and Foxconn.

“They are active in other areas entering into the notebook manufacturing part of the EMS and original design manufacturing (ODM) industry challenging the established ODMs,” explained Michael Palma, senior research analyst, Electronics Manufacturing, IDC.

The slower growth rate is also the result of decreased computer demand and weakened consumer device segment but while other segments should also slow significantly, opportunities exist for EMS firms in the industrial sector where OEMs are expected to increase their use of contract manufacturers, Palma said.

Other reasons for the dip in growth are emerging competition from leading distributors who have custom engineering divisions that can challenge EMS and ODMs for assembly and reverse logistic services. 

"In addition, some of the leading motherboard manufacturing firms have launched EMS and ODM opportunities targeting notebooks, desktops, netbooks and industrial PC contract manufacturing," Palma said.

IDC also warns EMS of the internal issues to evaluate like excess capacity, misalignment between strategy, investments, goals, and business models; poor EMS value propositions to systems original electronic manufacturers; and problems in the business models of EMS and ODMs contributing to low margins.

In 2006 and 2007 the double-digit revenue growths were 20% and 16%, respectively. This year the figure was 9.3% reaching $291 billion in revenues.