In 2007, the big buzz for electronics contract manufacturing in Asia has been Vietnam. Although US-based Sparton was one of the first EMS to invest in the emerging market, both Foxconn and Jabil dominated the headlines this year. First Foxconn was reported to have made a multi-billion dollar investment in Vietnam. Then Jabil followed suit with a $100 million investment. iSuppli believes there is more contract manufacturing penetration to come — both from the ODMs and the tier-two and tier-three EMS players.
Why the push to Vietnam? You need to look at the stated and latent needs of the OEMs to answer that question. We think OEMs are looking for a more diversified manufacturing footprint that is still low-cost in nature. Reports suggest that some OEMs may feel overdependent on their China footprint. Inflation and a mobile workforce may have stimulated the manufacturers to look for an alternative as well. The alternative to China is not just Vietnam though. Malaysia has also seen a pick-up in manufacturing as Flextronics extended their footprint recently in Malaysia. As for 2008, the story will be about ODM transition. The Taiwan based, compute-centric providers are facing some serious business model challenges. Quanta, Compal, Inventec, and Wistron must figure out a long-term fix to energize margins and break into new market segments. Itwill also be interesting to see whether or not the ODMs attempt to go back in the supply chain and develop vertical manufacturing capability to enhance product lifecycles and drive financial performance.
