Electronics Contract Manufacturing Business to Stay Afloat During Recession

Jan 1, 2009 12:00 PM

The Global Electronics contract manufacturing business will not escape the impact of the current economic downturn. However, it will continue to expand and even experience a mild rebound in three years, according to El Segundo, Calif.-based iSuppli Corp.

Global contract manufacturing revenue, consisting of sales by EMS and ODM providers, is expected to grow by 8.3% in 2008, down from 16.1% in 2007. Previously, iSuppli forecasted growth of 9.1% in 2008.

In 2009, growth will slow to 6.1% as the global recession sets in and demand from consumers and enterprises continue to soften. In 2010, OEM demand will stabilize and contract-manufacturing growth will rise to 7.6%. Expect growth to rise to 9% in 2011 as the global electronics and contract manufacturing markets recover. However, the contract manufacturing market will continue to expand during this period as OEMs attempt to adjust their cost structures and enhance core competencies.

iSuppli's research also indicates short-term credit issues are not currently impacting contract manufacturers' operations. An analysis of the bankruptcy risk for the top eight EMS providers indicates that most providers remain in a financial safety zone. Furthermore, iSuppli's quick survey of EMS providers did not indicate any immediate risk specific to upcoming maturity dates for debt instruments. Finally, the short-term cash reserves of the top EMS providers should mitigate any short-term financial crisis.

During the last major recession, in the 2001 to 2003 time frame, the contract manufacturing industry managed to maintain growth, and then experienced a surge in revenue in 2004 as the market recovered. The EMS/ODM industry has frequently noted this “rubber-band effect,” where the market snaps back vigorously from industry downturns.

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