Market Insight

Is this the dead canary in the coal mine for the electronics industry?

March 22, 2016  | Subscribers Only

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On March 10th Foxconn reported February’s consolidated revenue of NT280.64 billion which was a 0.22% year-over-year increase from February, 2015.   However, the first two months of 2016, consolidated sales revenue was down -8.55% on a year-over-year (Y/Y) basis. Alarmingly, the Y/Y consolidated revenue performance of the other leading Taiwanese EMS/ODM companies’ yields similar results.  Pegatron reported -10.77%, Quanta -2.37%, Compal -13.2%, Lite-On -4.9%, Qisda -11.27%, and MiTAC -31.12%.  Only Inventec and Delta showed Y/Y improvement with revenue growing 6.02% and 3.9%, respectively.  Overall the top 12 Taiwanese EMS/ODM companies’ revenues are down -8.5% Y/Y for the first two calendar months of 2016.

In the US, Jabil Circuit warned of weaker demand and adjusted guidance to $4.1B to $4.3B in its third quarter, which is well below analysts’ estimates of $4.7B.   The global EMS/ODM companies are seeing pronounced weakness in the “3C” sectors of computer, communications and consumer devices.  Weakness in the PC notebook, tablet, and smartphones are generally the most widely referenced reason for the decline.  The automotive segment is providing a bright spot in an otherwise gloomy environment for ODM/EMS companies growing around 7% annually driven by infotainment systems, GPS, and increasing sensor array attach rates.
Looking forward, for the full year 2016, IHS expects total EMS/ODM industry sales revenues to be down between -4% and -6% from 2015.   The effects of such a revenue decline could include a slowdown in the rate of expansion into markets such as India, Vietnam, and Brazil. The big question to be answered is who or what will replace Apple as the EMS/ODM industry’s growth driver?

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