As 3Q09 reports begin to trickle in there are positive indicators that indeed, the recovery is upon us, though no one is expecting a spike that is sustainable just yet. With the retrenchment of so many along the supply chain to reign in inventory numbers, protect margins and safeguard company health, there were also the opportunities for acquisition, mergers and JVs, as discussed here and here in earlier MarketWatch Commentary posts.
In sum, both the EMS and ODM sectors are down in double digits YoY, but ODMs appear to be doing better overall, as nicely summarized in Manufacturing Market Insider's recent September 2009 issue (Vol. 19:9, pp. 1-6). 'Doing better' doesn't mean positive numbers just yet, rather, not as down as EMS. "Large Taiwan-Based ODMs" are down -9.9% for 1H09, while the "largest EMS providers" were down -19.2% for the similar time period, including Hon Hai in the group (MMI 19:9 p. 3, 1); without Hon Hai, the decline would be -27.1%.
Why the difference between ODMs and EMS? One critical variable is the inventory realignments. EMS companies certainly felt considerable stress from both sides of their supply chains as inventory management issues left many EMS companies with difficult strategic decisions: working with OEMs and their downstream channel partners simultaneously, both of whom wanted inventory off of their books and docks. ODMs too felt the pinch this year, but of course with new market demands from consumers and OEMs having to reconsider margins, redesigns and innovative designs are in demand.
Those EMS companies faring the best, most notably Hon Hai, continue to do so based on "blue-chip" customers, diversification (i.e., not being a pure-play EMS) and supporting subsidiary units that can contribute and off-set other units' downturn periods. As MMI notes, though, one question about the outlier, Hon Hai, is whether it can continue to be considered an EMS or will it become more of a conglomerate? (ibid., p.3).