Contract electronics manufacturing is growing faster than anyone thought-in fact, its rate of growth may have been "grossly underestimated," said a recent Bear Stearns & Co. study.
Tom Hopkins, Bear Stearns' managing director and electronics manufacturing services (EMS) analyst, recently completed the third annual Electronics Manufacturing and Supply-ChainSurvey, polling 200 leading OEMs. The companies that responded totaled $2.3 trillion in equity market capitalization, $564 billion in sales, and $373 billion in cost of goods sold.
The poll found that nearly all the leaders in each electronics hardware sector intend to outsource significant parts--if not most--of their manufacturing. Of those polled, 90% said they plan to increase their use of electronics manufacturing services over the next 12 months. On average, OEMs responded with a long-term goal to outsource 72% of their cost of goods manufactured--almost five times higher than the current industry estimate of 15% outsourced.
This figure implies that over the next five years the current contract manufacturer industry of $75 billion could grow to $350 billion. "Both the rate and the magnitude of outsourcing is accelerating, and it is accelerating rapidly," said Hopkins, based in New York.
The poll also found that virtually all of the start-up high-tech OEMs are forsaking building internal manufacturing plants. The companies are planning to totally rely on EMS providers. Most companies cited cost reductions as the main reason they are choosing to outsource their production, followed by capacity constraints and
Given the size of the total available market to be outsourced and the commitment by leading technology hardware OEMs to adopt "virtual manufacturing strategies," Hopkins said, it is likely that an EMS company is going to reach $50 billion in revenue in the next three to five years.