PHOENIX -- The EMS supply chain risk is trending down from its second-quarter 2009 peak, according to recent data released today by Charlie Barnhart & Associates.  

Nevertheless, the firm says caution is in order for 2010 as most of the industry "is far from recovering past losses and remains in less than a fully actualized business state." 

The latest graph shows the estimated Composite Business Risk ratio for the March 2010 quarter at about 0.98, down for the third straight period and at its lowest mark since the fourth quarter 2008, and well below the high of more than 1.1 set in the June quarter. However, the estimated March ratio remains well above the 2007 average of 0.8.

The CBS indicator is an estimate of the overall supply risk in the global EMS sector. It takes into accound currency rates,  economic forecasts, infrastructure scalability, cost and availability of resources (including energy), outstanding regulatory and geopolitical issues, fixed asset utilization rates, book-to-bill ratios, current delivery trends, lead-time projections and capital costs, among other factors. 

In a report released today, the firm said, "This situation is compounded by the flat- to mid-single digit revenue projections for [calendar] 2010. Not exactly a robust environment for recovery." It also noted anecdotal evidence of price shifts by Chinese and Taiwanese ODMs.

According to CBA, the capacity utilization rates in November and December were 50% in the US and Canada, 80% in Mexico, less than 25% in Western Europe, 65% in Southeast Asia, 85% in China, and perhaps surprisingly, under 50% in Eastern Europe. Most of those regions are trending toward consolidation for 2010, the firm says. CBA measures capacity utilization by assuming a baseline of $1 million/annum per 1,000 sq. ft. of manufacturing space, with production at that level equaling 100% capacity utilization.  

The report cites several risk factors for 2010, among them ongoing supply failures, capability consolidation,enterprise failure (read: bankruptcy or closures); changing business models; and legislative and trade issues. The firm also sees labor rates rising at faster levels in Mexico, China and Southeast Asia than in the US in 2010.

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