EL SEGUNDO, CA -- The ongoing slump in electronics demand has prompted iSuppli to further cut its growth expectations for EMS and ODM companies.

The research firm lowered its forecast to a 9.9% drop for 2009, to $270.8 billion. That's a revenue drop of nearly $30 billion from 2008.

In November, iSuppli’s forecast 2.2% growth for the year. The firm added that global contract manufacturing revenue will rise at a CAGR of 1.3% from 2006 though 2012, down from the previous outlook of 5.3% growth.

“This marks the third significant cut to our forecast during the past 24 months. The recessionary ripple has compounded the pre-existing conditions that already pressured the manufacturing value chain,” said Adam Pick, principal analyst, EMS/ODM for iSuppli.

“Looking forward, it’s not pretty,” Pick added. “Stalwarts of the electronics marketplace — including leading brands, manufacturers and component suppliers — have issued lackluster guidance, or in Sanmina’s case, no guidance at all. Plus, the ODM rally seems to be losing steam as Taiwanese manufacturers are seeing sales drop and inventories rise.

“iSuppli research indicates that electronics OEMs continue to value the benefits of outsourced manufacturing. However, weak demand has triggered program delays and push-outs. Also, we have detected some OEM in-sourcing activities that will hamper EMS/ODM industry performance during 2009.”

EMS sales guidance for the first quarter of 2009 reveals that hopes for a near-term market bottom are unrealistic, the firm said. Revenue guidance issued by Flextronics, Celestica and Sanmina-SCI was well below seasonal patterns.

“It feels like a slippery slope for the EMS providers. Sales are down, layoffs are abundant, margins are contracting, capital expenditures have been cut and solvency questions have reappeared,” Pick noted.

Additional hurt was experienced by some EMS providers when Nortel Networks announced its bankruptcy on Jan. 14. iSuppli estimates that Nortel spent more than $1.7 billion with its external manufacturing supply base during 2008.

As for the ODMs, the fourth-quarter of 2008 results and market commentary from the Taiwanese manufacturers is fairly bearish. Asustek posted its first quarterly loss as a public company and Compal's sales dropped 8% during the period. As for notebook shipments, a recent report suggested that mobile PC shipments during January were down 30% compared to the prior month.

“In addition to this data, iSuppli recently concluded a broad, survey of supply-chain participants regarding January demand levels,” Pick said. “The qualitative and quantitative inputs captured during those interviews compelled us to further reduce our EMS/ODM forecast.”

For a copy of the EMS and ODM forecast, email Mike Buetow at mbuetow [at] upmediagroup.com.

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