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EMS Sector Booms, But Margins Squeeze
21 Aug
Summary
- Top EMS companies saw revenue rise 27% YoY in Q1FY27.
- Margin pressure persists due to rising raw material costs.
- Smartphone demand remains weak, impacting volumes and margins.
As of August 21, 2026, the Electronics Manufacturing Services (EMS) sector is navigating a complex landscape. In the first quarter of fiscal year 2027 (Q1FY27), the top eight EMS companies reported a robust 27% year-on-year revenue growth. This surge was primarily attributed to price increases implemented to offset rising input costs.
Despite revenue gains, margin pressure remains a significant concern. Escalating raw material expenses, including memory chips and copper clad laminate, coupled with wage revisions and currency depreciation, are impacting profitability. Price hikes are being implemented, but the pass-through of costs is occurring with a lag, affecting EBITDA and profit after tax.
The smartphone segment continues to be a weak spot, with domestic volumes estimated to have declined by 11% year-on-year in Q1FY27. This downturn is linked to higher component prices and increasing average selling prices. However, the core EMS business outside of mobile and room air conditioners demonstrated strong performance, with revenue growing by 68% year-on-year.
Supply chain disruptions, particularly due to the ongoing West Asia crisis, are increasing lead times and necessitating strategic inventory buffers, stretching working capital. This has also delayed certain project timelines. Analysts anticipate margin recovery from fiscal year 2028 as backward integration initiatives scale up.
While demand for EMS services remains strong, the balance between revenue growth and margin recovery is critical for investors. Key factors to monitor include cost pass-through effectiveness, margin improvement, working capital management, and the execution of new manufacturing capacities.
