FOR IMMEDIATE RELEASE: TFI Releases EMS Industry Five Year Forecast: "Partly cloudy" Healthy growth, but slim profits for EMS industry as a whole; yet some companies do very well October 12, 2006, Alameda, Calif. In its just-released Five-Year Forecast, Technology Forecasters is projecting average annual growth of over 6 percent per year in global electronics production, with communications, medical and aerospace posting the strongest growth rates, according to TFI. As markets expand, OEMs are expected to continue to outsource a greater percent of their total production. TFI estimates that total outsourcing is projected to grow from just over $200 billion in 2005 to nearly $380 billion by 2010. This translates into revenue growth for both the EMS and ODM sectors in the mid- to low-teens. As for regional distribution, TFI estimates that in 2005 67 percent of all contract production, including both EMS and ODM, took place in Asia, 19 percent in America, and 14 percent in Europe. Profitability metrics for the industry as a whole however continue to paint a bleaker picture. "On average EMS companies are struggling," noted TFI Research Director Bruce Rayner. "For instance, average net profitability for over 40 of the largest public and private EMS companies hovered around 0 percent last year. ODMs are doing somewhat better: average profitability for over 90 public ODMs was around 4 percent in 2005." TFI Senior Economist, Matt Chanoff, author of the annual Five Year Forecast explains, "There is continuing convergence between the two business models, EMS and ODM. Falling margins have led many ODM companies to focus on higher-profit but smaller-volume niches, such as specialty laptops and navigation systems. Many ODMs have focused on own-brand manufacturing  and the leading ODMs have lost ground to Foxconn as that company has won significant new contracts. Also, ODM companies have found it difficult or impossible to adapt to address industrial, medical, telecommunications infrastructure, and military applications on a significant scale."   Low profitability is the result of a few factors, according to the report: continued excess capacity, pricing pressure from OEM customers, ease of entry, increasing competition between ODMs and EMS companies, and the costs associated with "right-sizing" and expansion into new markets. Of course, there are exceptions. The performance of top-ranked Foxconn, for example, both in terms of revenue growth and profitability has been remarkable, and poses a challenge for many top-tier competitors.     TFI's Electronics Manufacturing Outsourcing Report: Five Year Forecast of EMS and ODM Industries by Market Sector and Geography is available to Quarterly Forum members. Please contact Jennifer Read 623-293-6985 jread@techforecasters.com for more information on how to join.   Editors: for selected charts from this study and/or to schedule an interview with study authors, please contact Jennifer Read 623-293-6985 jread@techforecasters.com