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Report: Margin Pressures Continue
Written by Mike Buetow
Wednesday, 16 June 2004
SAN FRANCISCO, May 24 -- Margin
pressure continues across most major end-markets in the electronics
industry, the result of "relatively anemic" demand and excess
manufacturing supply, says a new report from a major investment bank.
Chris Whitmore, an analyst at Deutsche Bank's
Equity Research group, forecasts contract manufacturers' margins to
disappoint, particularly compared to past cycles. DB predicts low-cost
leaders like Flextronics and Taiwanese ODMs/EMS vendors "will continue
to take share" for the foreseeable future.
As highlighted in our most recent EMS Cheat Sheet, profitability
metrics and growth rates of the ODMs and Taiwanese remain higher than
their U.S. competitors.
In the report, DB called pricing for hardware "particularly
aggressive," pointing to previous over-investment and limited new
applications, discounted hardware sales by OEMs, and changes in the
EMS/ODM model which have enabled less competitive or financially
instable OEMs to stay in business.
Taiwanese firms have been taking share at higher margins, DB said.
"Between 2002 and 2005, we estimate that Hon Hai, Compal and Quanta
will all post annualized sales growth in excess of 25%. This compares
to roughly 10% for the EMS industry (which includes acquisitions in
2002 and 2003)."
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