SAN FRANCISCO, Jan. 11 -- Decelerating sales growth and efforts to cut inventories across several product lines will hurt EMS vendors in the coming months, says a new report.

Investment bank Deutsche Bank today forecast EMS sales to slow through at least the first half of 2005. In a research note, analyst Chris Whitmore predicted 7% year-over-year growth for the industry in 2005.

"We remain concerned about the EMS industry's ability to meaningfully expand margins in the current business environment. We believe continued excess capacity, increasing competition from Asia-based producers and slowing near-term demand trends will likely result in continued margin pressure," Whitemore wrote.

Whitemore said that margin pressures and competition should be "somewhat offset" by restructuring and other cost-reduction activities.

The bank said fourth-quarter 2004 results should be in line with tepid expectations. "We believe most EMS vendors will report in line with our EPS forecasts, despite continued weak end-market demand in the December quarter." The bank's outlook for Sanmina-SCI was cited as "most cautious." "We expect Sanmina-SCI to post December quarter results at the low end of guidance," Whitmore wrote.