FRANKFURT -- Deutsche Bank has expressed concern over the U.S.-based EMS vendors' high-cost manufacturing footprint and Asian-based ODM/EMS vendors' increasing competitiveness for the past several years. The U.S.-based EMS industry experienced healthy growth in 2003 and 2004 as end market demand improved and Taiwanese companies were just beginning to expand beyond niche offerings. According to DB this trend came to an end in the second quarter of 2005 and is getting worse in Q3. 

DB is forecasting U.S.-based EMS sales to decline 5% year-on-year, compared to a 50% Y/Y increase for Hon Hai. Hon Hai, now the largest EMS vendor, may grow by more than $8 billion in 2005 (Jabil and Celestica had 2004 sales of $6.5 and $8.8 billion, respectively). DB believes Hon Hai will continue to take share from poorly positioned EMS vendors like Sanmina-SCI and Solectron in the next year.

Factors contributing to DB’s cautious view on the U.S EMS industry include the excess of high-cost capacity and increasing number of competitors. In addition, the Taiwanese are becoming increasingly competitive on quality.  While most U.S. EMS vendors have rationalized the majority of their high-cost capacity, there is still too much capacity at companies like Sanmina-SCI and Solectron.

At the same time, Taiwanese companies like Hon Hai and Asustek have expanded outside of their core offering and are taking share. Asustek, a manufacturer of motherboards, has become a  major player in the notebook, server and gaming market, and recently entered the handset market. Hon Hai is manufacturing low- and mid-range datanetworking gear for companies like Cisco, and handsets for Nokia/Motorola.