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ODMs, EMS providers ride on LCD TV market boom

Posted: 27 Aug 2007 ?? ?Print Version ?Bookmark and Share

Keywords:ODM? EMS providers? LCD TV market?

Contract manufacturers are getting into the LCD TV market in a big way, as the global production of LCD TVs is expected to rise by more than a factor of five by 2011, iSuppli Corp. has predicted.

The two types of companies in the contract manufacturing business, the ODMs and the EMS providers, together are expected to produce 61.8 million LCD-TVs in 2011, up from 12 million in 2006. By 2011, these contract manufacturers will produce more than one out of every three LCD TVs made worldwide.

The ODMs and EMS providers have been lured to the LCD TV market by its triple-digit increases in shipments during the last few years. LCD TV unit shipments expanded by 103.9 percent in 2006 and will rise at a CAGR of 31.7 percent for the five-year period of 2006 through 2011.

"The contract-manufacturing industry is playing an essential role in the development of the LCD TV market," said Jeffrey Wu, iSuppli analyst for EMS and ODM services. "ODM and EMS companies are enabling brand names to enter the market and compete, conducting the essential behind-the-scenes tasks like manufacturing and supply chain management."

LCD TV brands also gain other advantages from outsourcing production, including improving resource allocation, alleviating their inventory burden, avoiding regional tariffs and increasing asset flexibility.

Market attraction
LCD-TV outsourcing generated $8.9 billion in revenue in 2006 and is projected to grow to $25.2 billion in 2011, rising at a CAGR of 23.2 percent. The huge revenue growth outlook has attracted the attention of a large number of Asian ODMs. There are more than 20 Asian ODMs serving LCD TV OEMs, including global brands, regional brands and retail brands, making for a decentralized competitive landscape.

EMS providers, on the other hand, are just beginning to penetrate the market. iSuppli estimates that from a final-assembly shipment perspective, of all LCD TVs outsourced in 2006, only 6.8 percent were produced by EMS providers, with the remainder made by ODMs.

During the last few years, leading EMS providers including Celestica, Elcoteq, Flextronics, Hon Hai and Jabil have invested significant resources in improving their competitive positions in the LCD TV manufacturing industry to undertake tasks including providing board-level assembly services; utilizing facilities in emerging markets; investing in the LCD panel business; developing reference-design capabilities; and forming joint ventures with OEMs to build LCD TVs.

Global in-house and outsourced LCD TV manufacturing forecast

Price factor
While these investments are paying off gradually, EMS providers still lag far behind their ODM peers in terms of LCD-TV shipments. Furthermore, a number of critical challenges are facing EMS providers, adding uncertainty to their endeavors in the LCD-TV manufacturing business.

iSuppli warns of the challenges including pricing pressure from OEMs and eroding margins at the ODM and the pricing fluctuations for LCD panels. There is also a limited potential to leverage the vertically integrated supply chain due to tight control of material supply chains by a number of Japanese OEMs. In addition, EMS providers should be wary of the barriers to entry built by ODMs in the form of footprint expansions and product design and production knowledge accumulated through the learning curve.

The firm predicts that while EMS providers increasingly will catch up to ODMs in the LCD-TV market, ODMs will remain dominant in this space for the next few years.

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