Outsourcing drives EMS, ODM growth

By Suzanne Deffree, News Editor -- Electronic News, 7/24/2007

Current market dynamics in the electronics contract manufacturing market point to further outsourcing by original equipment manufacturers (OEM) and as a result, both electronics manufacturing service (EMS) providers and ODMs will enjoy steady growth through 2013, Frost & Sullivan reported this morning.

Compared to the EMS market, ODMs have recorded higher growth over the last five years. Research from Frost & Sullivan, World EMS Provider and ODM Convergence Markets, finds that the world EMS market earned revenues of $190 billion in 2006 and estimates that will reach $387.42 billion in 2013. Meanwhile, the research shows the world ODM market earned lower revenues of $100.65 billion in 2006, but estimates that will more than double to reach $219 billion in 2013.

“Increased outsourcing from automotive and communication industries along with new outsourcing opportunities from the aerospace and defense, medical and industrial applications industries will likely drive the future growth of the EMS market,” Frost & Sullivan Research Analyst Lavanya Ram Mohan said in the firm’s statement. “Although current EMS penetration within niche markets is not significant, this trend is likely to change during the latter part of the forecast period. Success lies in penetrating the niche markets and capitalizing on the existing untapped potential.”

Frost & Sullivan noted that design expertise represents a primary growth factor for ODMs, especially in markets such as consumer electronics, computing, PC and servers, where OEMs often seek ODMs as strategic design partners. ODMs’ ability to offer design solutions with high quality and low cost options will maintain the market’s high growth rate through 2013, the firm said.

However, increased opportunities bring about increases internal competition, Frost & Sullivan warned. Average selling prices in the traditional markets have declined and with competition expected to further intensify, the firm said that EMS providers can no longer remain comfortable based on their manufacturing, engineering, design or supply chain expertise. Diversification is necessary.

“Market saturation within traditional markets has encouraged EMS providers to diversify their services and offerings,” said Mohan. “In line with this trend, EMS providers will likely establish partnerships with ODMs and have even created dedicated ODM resources such as centers of excellence offering design, testing and R&D services.”

Going forward, EMS providers need to offer differentiated services to OEMs, while simultaneously retaining the current level of services, the firm said, noting that, in particular, EMS providers offering design services can increase revenues and profits substantially and that EMS providers are expected to benefit from the growth potential within supply chain related operations.