SAN JOSE, Dec. 13 -- Hewlett-Packard's efforts to lower its costs could bode poorly for its EMS suppliers. That's according to a research note today from Deutsche Bank.

HP spends an estimated $43 billion each year --- the largest in the world -- on supply chain procurement. The company seeks ongoing supply chain cost reductions of the $1 billion to $1.3 billion annually through 2007, DB wrote, the bulk expected to come from lower procurement costs.

HP, which sources 88% of its' spend with its top 40 suppliers, has plans to shrink its supplier base even more. In doing so, the firm will retake control of various purchasing that the company had previously outsourced to EMS firms, DB wrote.

HP is demanding its EMS firms compete on their manufacturing capabilities, rather than procurement. "While HP implemented this process over a year ago to get better clarity into its costs (and eliminate the CMs' profit from material cost arbitrage), we believe HP is accelerating this move and continuing to pressure pricing at the EMS level," DB analyst Chris Whitmore wrote.

Furthermore, the company is pushing toward greater standardization across its hardware platform, reducing the number of parts it uses.