Frankly Speaking: EMS weakness starts to show

This article first appeared in The Edge Malaysia Weekly, on December 20, 2021 - December 26, 2021.
Frankly Speaking: EMS weakness starts to show
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Technology companies operating in various segments of the sector have been having it good in the last 18 months. From producers of electronic chips to those undertaking testing of the components, they have all been raking it in.

Looking ahead, however, not all segments of the electronics sector are likely to enjoy healthy margins. Companies that provide electronic manufacturing services (EMS) are beginning to see a drop in their margins, according to the latest quarterly results.

Last month, ATA IMS Bhd announced a loss in its second-quarter results for the period between July and end-September. Last week, VS Industry Bhd registered a decline of less than 2% in its top line for the period between August and end-October.

VS Industry’s net profit fell, however, by more than 40% year on year to RM39.4 million. Both ATA and VS Industry attributed the lower profit numbers to a shortage of labour and raw material.

Worldwide, there are disruptions in the supply chain because of the pandemic. There are delays in the loading and unloading of containers at ports. Over time, as the effects of the pandemic wear off, the logistics hitches will be fixed.

Not the labour issues, though. They are here to stay for a long time and can be fixed by no one but the companies themselves.

VS Industry says it is hiring more domestic workers, hence the higher cost of production. ATA is also looking at hiring more domestic workers as well as looking at relocating to lower-cost producing countries such as Vietnam.

For the labour-intensive EMS sector, it looks like margin compression is likely to persist for some quarters to come.

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