No matter who wins the election, it’s very likely military spending will be drastically cut as Americans pressure Congress to fix the domestic economy and explore energy initiatives. Charlie Barnhart & Associates (CBA)  research reveals a disturbing consequence of lower defense spending on the domestic EMS industry that could put further pressure on manufacturers. While defense contracts are a fairly low percentage of the overall TAM in the North American region for electronics, these higher margin contracts contribute disproportionately to the bottom line of many US manufacturers. That’s why so many CMs have been chasing these projects with such enthusiasm for the past decade. As high volume, low mix business moves offshore, the conventional wisdom held that defense projects were far more stable and profitable as they were bound to stay onshore because of government regulations. Furthermore, the volumes, though low, were steady, because the end products were getting blown up and needed to be replaced.

The point is, if that business dries up suddenly, it will be a jolt to budgets because there really isn’t any foreseeable business waiting in the wings to replace it.