Remember also the pie is growing 7-10% a year.
The electronics industry is growing probably 10% a year, so the amount of manufacturing is growing that much. It is possible that ECM players could get 25 to 50% of that new capacity build-out; this alone would boost revenues 15 to 30% a year, even before considering purchases of existing OEM manufacturing operations.
Next, get a copy of Solectron's annual report. Solectron says they are trying expand the range of services offered to their customers. But at this point, they admit they can't yet offer all these services. On page 9 of the report, they have a figure showing all the services customers want from them, which services Solectron provides in the past, and what services they now provide. The services range along the product deployment process from Technology Development support, Market Development support, detailed Product Design, Product Development, Product Information Management, Material Supply, Manufacturing, Distribution, Order Fulfillment, through Repair and EOL support. If ECM companies begin to pick up these responsibilities, then the market is even larger. These could increase the pie another 50%. As Solectron said, the ECM players have penetrated problably less than 10% of the market. And Solectron, one of the largest players, has about 6% of the ECM sector. This industry sector has a lot of consolidation in front of it.
Finally, some ECM players are getting into component manufacturing and supply. For example, Flextronics, Deswell, and Elamex make plastic components and enclosures (like telephone cases), and DII Group makes ASICs. If you include these kind of component manufacturing in the revenue growth picture, the pie gets even bigger. Also some ECM players are picking up elecromechanical manufacturing. NatSteel manufactures appliances, and ACTM manufactures some products for Stanley Toolworks. I doubt these market segments are included in the market segment estimates. Yet similar forces drive outsourcing to contract manufacturers in those industries.
I've tried really hard to find a scenario where the sector won't grow at least a 15% rate each of the next five years, and I can only come up with a depression. A normal recession won't do it. Look at Solectron and SCI Systems growth throuhg the 1990 recession. There was no interruption of the growth. In fact, it seemed to encourage the OEMs to outsource more.
Good discussion of worst case scenarios though.
Paul |
