CEMS 2002 forecast grim.

The worldwide contract electronics manufacturing services (CEMS) market normalized in 2001 after explosive growth in 2000, according to a recent report from Electronic Trend Publications, Inc. (San Jose, CA, www.electronictrendpubs.com). The outlook for 2002 seems grim, since the industry's two leading segments, telecommunications and computers, have not fully recovered to their previous robust state, and competition from aggressive original design manufacturers (ODMs) is an increasingly serious threat. Once the telecom equipment market fully recovers, estimated to be sometime in late 2003 or early 2004, outsourcing by original equipment manufacturers (OEMs) will drive strong growth rates for the remainder of the forecast period.

The CEMS market experienced an extraordinary reorganization in 2001, particularly in North America, where revenues decreased significantly while all other regions experienced a net increase. Such a decrease would indicate that a substantial proportion of manufacturing was sent offshore to low-cost regions as a direct result of competition. Surprisingly, the rest of the world (ROW) region experienced the strongest increase, followed by Asia and Europe.

In the future, North America's CEMS market share will continue to shrink, largely as a result of the increasing cost sensitivity of telecom and computer products. Asia will experience the strongest growth of any region, closely followed by Eastern Europe. Also, ROW regions, such as Australia and India, are expected to experience higher than average growth as a result of new demand for local capability within these countries.

For the first time ever, the CEMS industry experienced a revenue downturn from 2000 to 2001.Upon closer examination, however, it appears that only two market segments were responsible for this: telecommunications and computers/peripherals. By 2006, the communications equipment and computer/peripherals market segments are projected to achieve parity in terms of sales revenue and account for a smaller proportion of total revenues (approximately 73 percent) than in 2001. Some of the highest growth rates are expected to occur within the transportation sectors (automotive and aerospace), where the trend to outsource is especially strong. Consumer and industrial products segments will experience relatively moderate growth.