Patroller, there is no doubt that the outsourcing trend is very much in the ECMs favor. The decision to contract out one's manufacturing is no doubt a business decision based on economic motivation. OEMs will not take back manufacturing and do it in-house. That being said, I reiterate that my prime concern is that if global demand for finished product slows, it will hit the ECMs hard and fast. We haven't seen that yet, but the market is betting that we will.
If a slowdown happens, and one has to think that there is at least a decent chance that it will, given all the disappointments that have been announced recently, get ready for contract modifications and/or cancellations amongst the group. The ultimate effect could be a glut of capacity amongst ECMs, and a tightening of margins as various ECMs bid for the existing business being offered out by OEMs. Remember that few OEMs tie themselves into one ECM. ERICY has strong relations with SCI, SLR and JBIL. CSCO and COMS also divvy their biz up among many ECMs. These OEMs have a choice of who to do business with, and all the biggies offer design, assembly and final box build in varying degrees. At a minimum, OEMs can threaten to take business away and demand price concessions.
All I'm trying to point out is that the ECMs are prone to cyclical fluctuations that affect their customers and can come back to haunt them too. We'd be foolish to ignore the possibilities. |
