iSuppli has said the global contract manufacturing industry growth is slowing down. According to them there has, over the past 5-years, been under-utilization of manufacturing capacity and the industry is set for a period of consolidation. Part of the reason according to iSuppli is a slowdown at Foxconn. iSuppli says:
Revenue for the global CM industry, consisting of Electronics Manufacturing Services (EMS) and Original Design Manufacturing (ODM) providers, is set to expand to $432.3 billion by 2012, rising at a Compound Annual Growth Rate (CAGR) of 7.2 percent from $305.5 billion in 2007. While a $126.7 billion gain in revenue during a five-year period may sound like fantastic growth, it actually represents a major slowdown compared to years past, on a percentage basis. Global CM revenue rose at a CAGR of 15.5 percent from 2002 to 2007. The industry CAGR amounted to 49 percent during the 1990s.
“Several factors are inhibiting the revenue surge of the past 20 years,” noted Adam Pick, principal analyst, EMS/ODM at iSuppli. “Those factors include 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 and OEM/CM asset transfers.”
Right now in Taiwan and China there are many small contract manufacturers each vying for the piece of a very big pie. I think if contract manufacturers are careful about which markets they target they can still be successful. However, new entrants into the market will find it increasingly difficult to compete.
Adding to this news, Digitimes reported that ICP Electronics, a big Taiwanese EMS has also seen a decrease in demand and will therefore reduce their planned capacity expansion. According to Digitimes:
Taiwan-based IPC maker ICP Electronics has suffered a delay in expanding the production capacity of Armorlink SH, its manufacturing subsidiary in Shanghai, China, and has therefore downward adjusted the originally planned scale of expansion, according to the company.
ICP originally planned to establish eight new SMT lines in addition to three existing ones at the factory, with completion scheduled for the end of the first quarter of 2008, the company indicated. However, the expansion has lagged behind schedule, ICP noted.
To cope with the delay and in light of current orders, ICP has decided to install five SMT lines in August, with operation to begin in the fourth quarter of 2008, the company pointed out. The remaining three SMT lines originally planned may be added in 2009, depending on market conditions, ICP indicated.
iSuppli: Global Contract Manufacturing Transforms by 2013
Digitimes: ICP Electronics sees delay in China capacity expansion
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