LONDON — The global electronics contract manufacturing business is likely to fare better than other sectors of the industry in the downturn and is expected to show modest growth this year and next, according to market research group iSuppli.

Global contract manufacturing revenue, defined by iSuppli (El Segundo, Calif.) as including sales by Electronics Manufacturing Services (EMS) and Original Design Manufacturing (ODM) providers, is expected to grow by 8.3 percent in 2008, down from 16.1 percent in 2007. iSuppli previously forecasted growth of 9.1 percent for this year.

iSuppli suggests revenues for the sector will reach $331 billion this year, up from the $306 billion achieved in 2007. For next year, they are predicting revenues of $351 billion, rising to $378 billion in 2010.

The researchers expect growth will slow to 6.1 percent in 2009, as the global recession sets in and demand from consumers and enterprises continues to soften. In 2010, OEM demand will stabilize and contract-manufacturing growth will rise to 7.6 percent. Growth is predicted to rise to 9 percent in 2011 as global markets recover.

"Demand specific to the electronics marketplace will continue to soften," observed Adam Pick, principal analyst, EMS/ODM, for iSuppli. "As the end-markets erode due to recession, the trickle-down effect will cause less significant revenue growth for electronics supply-chain participants, including EMS/ODM providers."

Pick notes that OEMs, including Dell, are reported to be selling off up $15 billion in annual manufacturing revenues via a divestiture of desktop and integration facilities. He adds non-traditional OEMs — for instance those in the medical, industrial, aerospace markets — will continue to explore and adopt external manufacturing partners during the downturn.

iSuppli's research also indicates that short-term credit issues are not currently impacting contract manufacturers’ operations. "Fear and concern that most contract manufacturers are at a short-run risk for bankruptcy appear to be overstated," Pick opined.

The market researchers in part base their assumptions of what happened in the last major recession, in the 2001 to 2003 time frame, when the contract manufacturing industry managed to maintain growth, and then experienced a surge in revenue in 2004 as the market recovered.

But Pick also suggested this recession and recovery will be fundamentally different for the contract manufacturers. "There are several macroeconomic and industrial factors that will prohibit the revenue explosion we saw in 2003, 2004 and 2005."

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