EMS on Overdrive

The EMS industry has posted several straight months of what some consider excessively high book-to-bill ratios. The April peak of 1.62 has only marginally fallen over the past couple months and, as of this writing, was 1.48 in June, the most recent data available.

As a refresher, the ratio is calculated by dividing the amount (in dollars) of bookings by the amount in shipments. In other words, if over a set time period a company gets $110 worth of orders and ships $100 worth of product, its book-to-bill ratio would be 1.10. A ratio over 1.0 is considered an indicator of future market growth.

So a positive ratio is a good sign, generally speaking, but too much of a good thing makes folks nervous. And ratios in the 1.40 and above range are historically at the high end.

Some are concerned of an overheated market, but conversations with several leading EMS firms suggest instead that OEMs are offering longer forecasts, which are inflating the numerator. For instance, if the typical window was six months, it might be nine or even 12 months now. That pushes more “orders” into the data pile, but it’s a mathematical anomaly, not a sign of double-booking.

I don’t expect the sky to fall, at least this time.

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About Mike

Mike Buetow is editor-in-chief of Circuits Assembly magazine, the leading publication for electronics manufacturing, and PCD&F, the leading publication for printed circuit design and fabrication. He is also vice president and editorial director of UP Media Group, for which he oversees all editorial and production aspects. He has more than 20 years' experience in the electronics industry, including six years at IPC, an electronics trade association, at which he was a technical projects manager and communications director. He has also held editorial positions at SMT Magazine, community newspapers and in book publishing. He is a graduate of the University of Illinois. Follow Mike on Twitter: @mikebuetow