Some contract manufacturers weathered the storm in the first half of 2008 despite a housing market slump and the credit crunch.
The second half of the year will see electronic manufacturing service (EMS) and original design manufactures (ODMs) continue to grow, despite the ‘viscous trickle down effect’ in the electronic value chain, researcher iSuppli has claimed. However the firm does forecast a slowdown in growth.
“Most EMS providers don’t have any short-term debt maturities that could impact operations and most have significant cash reserves that could mitigate them during short-run financial issues,” said Adam Pick, principal analyst for EMS/ODM at iSuppli. “In fact, a recession could prove opportunistic contract manufacturers.”
The recession may be good for the EMS/ODM, he argued. In the 2001-2003 recession, these suppliers experienced a “rubber band effect” that stimulated significant revenue growth post-recession, he reported.
Top ODMs increased their annual sales from $12bn to $37bn during 2001-2004 while EMS providers had a compound annual growth rate (CAGR) of 11 per cent over the same time period.
This same “rubber band effect” may apply this time around as OEMs stick to their knitting, cut costs and budget more carefully, he argued.
“OEMs will refocus resources on core competencies, investigate ways to minimize cost structure and shore-up their balance sheet,” said Pick.
“This doesn’t mean things will be all rosy. Some EMS/ODM suppliers will definitely feel the pinch of a slow economy and shifting, OEM outsourcing strategies,” Pick added.
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