The survey also shows that a growing number of OEMs expect to increase projects with Asian original design manufacturers (ODMs) within the next year, underscoring the growing role of the mainly Taiwanese contractors in the electronics supply chain.

"There's not one customer we have talked with that does not want to outsource," said Thomas Smach, senior vice president of finance at Singapore-based EMS provider Flextronics International Ltd., during a presentation last week at the annual Bear, Stearns Conference in New York.

Gayla Delly, chief financial officer of Benchmark Electronics Inc., Angleton, Texas, agreed. "OEMs that want to get next-generation products to market fast will outsource to have a competitive edge," she said.

Contract manufacturers can expect revenue over the next year of $9 billion to $10 billion from new projects outsourced by computer, consumer, and telecommunications OEMs along with semiconductor capital equipment makers, according to Bear, Stearns analyst Thomas Hopkins.

The sixth annual Bear, Stearns survey polled 107 companies and found that 81% of them expect to boost their outsourcing efforts, compared with 87% of the respondents in last year's survey. The 2003 survey participants represent $370 billion in cost of goods sold, combined sales of $536 billion, and equity market capitalization of $1.8 trillion, according to Hopkins.

Several OEMs said their decision to outsource stemmed from a desire to reduce product unit cost by cutting materials, direct labor, and fixed overhead costs. OEMs mentioned capacity restraints as the second most important reason for outsourcing. Increased time-to-market was also cited by survey participants.

The survey also revealed that more OEMs are contemplating business with ODMs. About 45% of the respondents expect to increase their use of ODMs over the next 12 months, compared with 33% in 2002.

Hopkins said the increased interest in ODMs stems from OEMs' desire to use multiple vendors as well as strong approval ratings from consumer and computer OEMs that traditionally use ODMs. The recent survey indicated that 43% of consumer OEMs and 14% of computer OEMs plan to use ODMs within the next 12 months.

"The most significant increases came from telecom OEMs 48% this year vs. 26% last year and data networking OEMs 47% this year vs. 33% last year that are clearly looking more at low-cost product offerings from Taiwanese telecommunications and networking ODMs than they were a year ago," Hopkins said.

In addition, 28% of aerospace/defense, industrial, and medical OEMs said that they would expand their use of ODMs to access low-cost commodity product designs and simple, inexpensive controller cards.

However, the number of semiconductor capital equipment OEMs planning to use ODMs dropped to 14% from 33% last year.

By: DocMemory
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