Contract manufacturing, set for 8.5% growth

LONDON – Electronics contract manufacturing had a great year in 2010, rising by 33.4 percent to $347.3 billion, slightly larger than the semiconductor chip market, according to market research company IHS iSuppli. And like the chip market the contract manufacturing market is set for a more modest 2011 with sales rising by only 8.5 percent, iSuppli predicts.

The contract electronics industry, consisting of the electronics manufacturing services (EMS) and original design manufacturing (ODM) segments, will finish 2011 with revenue of $376.7 billion, up from $347.3 billion in 2010. Revenue will continue to rise at annual rates between 9 percent and 7 percent during the following years, reaching $472.3 billion in 2014, IHS iSuppli predicted.

Manufacturing operations in China were responsible for more than 75 percent of aggregate industry growth in 2010, and the country is expected to continue carrying the burden of driving worldwide growth in the global outsourced manufacturing market in 2011. The largest outsourced manufacturing provider, Hon Hai Precision Industries, reported nearly 60 percent revenue growth in the first nine months of 2010 compared to the same period in 2009.

With China’s domestic economy expected to grow close to 10 percent in 2011—much faster than either Europe or the United States—such growth will drive higher consumption in the country, the contract manufacturing industry believes. Should growth fail to materialize, however, the industry would be materially impacted.

However, it is not easy to make profits in contract manufacturing, according to iSuppli. Only four of the largest companies across both EMS and ODM industries reported sequentially higher margins despite higher revenue. Margin improvement in 2011 is likely to be more a factor of product mix, as opposed to pure cyclical aspects such as revenue growth. With the industry starting to add capacity, OEMs have grown more concerned with pricing, and input costs have risen.