Economic uncertainty means slower growth for contract manufacturers

Contract manufacturing revenue will drop less than one percent in 2012

01/31/2012

Revenue for electronics manufacturing services providers and original design manufacturers will drop slightly in 2012.The global electronics contract manufacturing market will decline slightly in 2012 because of economic uncertainty in Europe and the United States, according to a new report by researcher IHS.

Total contract manufacturing revenue in 2012 will drop less than one percent from $360 billion in 2011 to $357 billion in 2012, IHS reported. Contract manufacturing revenue includes sales from electronics manufacturing services (EMS) providers and original design manufacturers (ODMs). In 2011, contract manufacturing revenue grew 4.7 percent.

EMS providers will post negligible 0.3 percent sales growth as revenue rises slightly from $206.8 billion in 2011 to $207.5 billion in 2012, according to IHS. ODM revenue will decline 2.3 percent from $153 billion in $2011 to $150 billion in 2012.

The expected performance of the contract manufacturing industry in 2012 represents a big change from recent years.

In 2011, EMS providers posted 10.1 percent growth which followed 34.7 percent sales growth in 2009. However, the ODM market was already struggling in 2011, with a 1.7 percent decline, reported IHS.

Thomas Dinges, senior principal analyst for EMS and ODM at IHS, said the contract manufacturing industry is being negatively impacted by the debt crisis in Europe. “Europe remains a key market for products built all over the globe," he said. “If Europe goes into recession because of its financial problems, and the recession then spreads to the United States, there will be very little that the global contract manufacturing industry can do.”

A bright spot for the industry in 2012 will be China which should have high single-digit growth. China accounts for more than half of the global contract manufacturing industry ‘s revenue. China is also the world’s largest market for smart phones and PCs.

Besides slower growth, the worldwide contract manufacturing industry also will contend with other issues. For instance, the financial soundness of companies will be more closely scrutinized following the bankruptcy filing in October 2011 of Elcoteq in Finland.

In addition, contract manufacturers will be under pressure to be in compliance with all local labor laws following the recent announcement by Apple to allow outside monitors into its supplier facilities.