EMS Providers: Maintaining Competitiveness and Seeking Significance

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The EMS industry faces myriad difficulties. Looking at the latest figures of New Venture Research, a market research firm covering electronics manufacturing, the global EMS industry is anticipated to grow a mere 6.4% compounded annual growth rate (CAGR) from US$336 billion in 2014 to US$458 billion in 2019. Gone are the times when the industry used to post double-digit growth rates.

The total electronics assembly market, on the other hand, is expected to grow at 6% CAGR from US$1.26 billion in 2014 to US$1.68 billion in 2019. The EMS industry has a slightly better growth rate projection.

The total electronics assembly outsourced by the OEMs in 2014 to EMS providers and original design manufacturers (ODMs) accounted for 34.4% of the value of the total electronics assembly.

This small piece of the pie for the electronics outsourcing segments will likely grow minimally to 34.9% in 2019. The OEMs still comprise the bulk of electronics manufacturing. In a very dynamic business environment, the fate of the industry is marked by the yin and yang forces of challenges and opportunities.

Sluggish Economy

The global economy is not yet out of the woods. The October 2015 IMF World Economic Outlook report states, “Prospects across the main countries and regions remain uneven. Relative to last year, the recovery in advanced economies is expected to pick up slightly, while activity in emerging market and developing economies is projected to slow for the fifth year in a row, primarily reflecting weaker prospects for some large emerging market economies and oil-exporting countries.”

The recovery is expected to continue in the U.S. and Euro zone but the growth outlook is very modest. The U.S. economy is expected to grow by 2.6% year-on-year this year and 2.8% next year versus last year’s 2.4%. The Euro zone economy is likely to grow slightly by 1.5% this year and 1.6% in 2016 from last year’s 0.9%.

Japan is likely posting 0.6% growth rate in 2015 due mainly to weak exports to China and the U.S., coupled with poor consumer spending.

The growth in China will likely slowdown to 6.8% this year and 6.3% next year—faster compared to other economies’ growth rates but not as fast as its 7.3% last year. China’s weakness is due to a large extent to overcapacity in traditional industries, moderate growth of investment, and weak export sector.

Industry Downturn

The global electronics industry is experiencing a downturn. The world of personal computers takes a beating. Global PC shipments totaled 73.7 million units in the third quarter of 2015, a 7.7% decline from the same period last year, according to Gartner, Inc.

The market is expected to reach about 300 million units in 2015, a decline of 4.5% year over year. “We do not expect the global PC market to recover until 2016,” said Ranjit Atwal, research director at Gartner.

In a recently published report from the Dell’Oro Group, the worldwide telecommunication network infrastructure capex fell nearly US$10 billion in dollar terms in the first half of 2015. In China, the 4G rollout has reached its projected volume and 5G deployment will likely commence by 2017 at the earliest.

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Editor's Note: This article originally appeared in the December 2015 issue of SMT Magazine.