CBA Global Electronics Manufacturing Wellness Rating
While improving slightly this quarter and forecast to improve again next quarter, when viewed historically, it would be hard to argue that the global electronics industry is very healthy (see chart below). If a human being’s health were described as functioning at 35%, that person would be dead.
What is driving the sad condition of this patient? There are a number of specific factors:
- Distribution of global capacity is in the process of a dramatic restructuring.
- Projects that went to China for the wrong reasons are being repatriated in all three regions.
- Taiwanese ODMs are pushing back on OEMs and selling their technology directly to end users.
- Debt-ridden consumer countries are cutting back as the global financial crisis continues.
- Labor rates are rising, and skilled labor shortages are appearing in China, as growth slows there. This might be good news for exporters to China as the domestic market may be finally getting real.
Ultimately, this means that if you are an OEM, your current contract prices for EMS/ODM services have bottomed out. Be nice to your suppliers and push back on upper management when they say they want it cheaper. We can help with data to support you.
If you are an EMS/ODM, this means that margins are strengthening, and maybe you will stay in business after all.
And for all participants in the global electronic supply chain, we reiterate that risk is high and it remains likely that you will have some type of supply disruptions in the coming quarters, so stay alert.