EL SEGUNDO, CA — After years of singlehandedly powering the robust growth of the global electronics manufacturing services business, Foxconn (Hon Hai) grew marginally in 2008, and the top-tier EMS market contracted, according to preliminary market-share results from iSuppli Corp.

The collective revenue for the world’s Top-10 EMS providers in 2008 amounted to $129.9 billion in 2009, down 2.8% from 2007, according to iSuppli’s preliminary estimate.

This represents a major downturn compared to growth of 19.2% in 2007 and 20.3% in 2006. It also marks the first time since 2002 that the Top-10 EMS providers saw their aggregate revenue decline on an annual basis.

“The EMS industry has moved well beyond the inflection point and has been decelerating for some time” noted Adam Pick, principal analyst, EMS & ODM services, for iSuppli. “The data coming out of the industry have been indicating a state of slowdown for the last 12 months.” Foxconn, the world’s leading EMS provider, achieved grew 1.3% in 2008 with estimated sales of $55.4 billion, up from $54.7 billion in 2007. This compares to Foxconn’s booming increases of 39.4% in 2007 and 43.7% in 2006.

“The preliminary 2008 EMS rankings show that the “Foxconn Effect” has run its course,” noted Pick said. “Foxconn’s robust growth has been the primary factor driving the perennial double-digit expansions of the global EMS market. For example, if Foxconn’s contribution was removed from the Top-10 EMS providers’ results in 2007, total revenue growth would have amounted to only 8.3%, rather than 19.2%.”  

Pick cited two factors for Foxconn’s growth slowdown: a steep decline in consumer demand and exchange-rate issues.

“As demand waned during 2008 for Foxconn’s consumer-oriented products like desktop PCs and mobile handsets, the company was forced to issue profit warnings, to restructure operations and to rescind prior growth forecasts,”  Pick observed. “Another factor that greatly impacted Foxconn’s consolidated gross sales was the precipitous drop in the exchange rate between the Taiwanese dollar and the US dollar.”

As recently announced, iSuppli cut its revenue forecast for the 2006-2012 timeframe to a 1.3% CAGR, down from its November estimate of 8.3%. 

Beyond Foxconn’s tepid growth in 2008, several other developments during the past 12 months suggest that iSuppli’s lowered expectations for the EMS industry are likely to be realized.

For one, No. 5 Sanmina-SCI continues to face major challenges. The company’s revenue plunged by 32.5% during 2008 — a decrease of $3.3 billion — although some of the sales drop could be chalked up to the sale of its PC business.

“Selling its PC assets wasn’t enough for Sanmina to reignite its growth engine,” Pick noted. “Our estimates suggest that Sanmina lost over $400 million in sales from its core business, which now is heavily oriented toward higher-mix, lower-volume programs.”

During the fourth quarter, Sanmina-SCI’s sales dropped by 16.7% sequentially to $1.4 billion. Given the volatility in demand from its OEM customers, Sanmina-SCI chose to not offer guidance for the first quarter of 2009.

Another factor impacting the EMS industry’s growth in 2009 is the slow pace of program diversification initiatives among some of the Top-10 providers.

The 2008 results from Elcoteq and Benchmark Electronics indicate their diversification efforts are not yielding significant increases in revenue. No. 6 Elcoteq saw revenue fall 13% as Nokia continued to shift handset orders to Foxconn, Jabil Circuit and BYD. Now, Elcoteq considers Research In Motion its largest customer. 

No. 8 Benchmark's revenue dropped 11.2% during 2008 as both Sun Microsystems and EMC diverted spend to alternate suppliers and/or terminated mature product lines.

iSuppli expects very challenging times for EMS providers in 2009, given the global recession and financial crisis. iSuppli’s outlook calls for sales to shrink 9.9% as demand erodes and operating concerns increase.

Ed.: iSuppli's Top 10 differs in several respects from Circuits Assembly's Top 10. It appears that the iSuppli data for Foxconn take into account non-EMS related sales (the company also produces bare boards and connectors, among other things). Foxconn itself last week reported 2008 revenues of $42.3 billion. iSuppli also excludes Cal-Comp Electronics/Kinpo Electronics from its list, despite that company's contract manufacturing revenues of $3.2 billion last year, which would place it seventh overall. Finally, iSuppli includes Universal Scientific in its ranking, although the Taiwanese company reports EMS sales of just $490 million in 2008.