EMS at a crossroads 

THE electrical manufacturing services (EMS) market is expected to grow from US$647.2bil in 2025 to US$684.2bil this year, according to a report by Apex Securities.

By 2031, it could hit US$903.1bil.

Even on a global scale, that number is huge.

Industry insiders say some of the key drivers pushing these figures are increased demand for AI infrastructure equipment, a wave of supply-chain reshoring from China to diversified regional hubs and the electrification of vehicles.

For a few decades now, demand for these players have been tied to AI, industrial automation equipment and smart devices.

But the reality of it is, softening demand post-pandemic has led to lower order volumes, especially for consumer electronics-focused EMS players.

Adding to that is margin pressures on multiple fronts – US tariffs on imports and the limited ability to fully pass these incremental costs through to original equipment manufacturer (OEM) customers.

More recently, the closed-off Strait of Hormuz has halted vessel movements, causing shipping delays, higher logistics premiums and rerouting. Needless to say, the industry is bracing for an increased volatility in material availability as well as rising manufacturing expenses.

The situation in Malaysia isn’t too different from the rest of the world.

Most companies surveyed showed that the industry is not performing, with many struggling to maintain profitability.

SKP Resources Bhd saw its revenue and profits dip by 9.24% and 37.02% for the third quarter of 2025. PIE Industrial Bhd’s revenue dip of 31.79% led it into reporting a net loss of RM3.2mil for the fourth quarter of 2025.

Aurelius Technologies Bhd saw its profit dip by 41.74% to RM16.5mil for the fourth quarter of 2025.

Tradeview Capital senior analyst, Tan Jia Hui, says that although it’s difficult to precisely quantify the proportion of losses, she believes last year’s earnings weakness was largely driven by cyclical and external factors.

She says the implementation of reciprocal tariffs disrupted customer ordering patterns and compressed the margins of EMS players.

“Certain structural challenges have also emerged, including heightened competition and more aggressive pricing dynamics within the EMS landscape.

“As a result, even as demand gradually improves, earnings recovery may progress at a slower pace given continued margin pressure and foreign exchange volatility,” Tan says.

According to her, it does seem like there are early signs of a bottoming cycle within the EMS space, although the recovery remains selective rather than broad-based.

It is broadly believed demand improvement is largely concentrated among players serving structurally resilient sectors such as AI-related applications, telecommunication networks, photonics and data centre infrastructure.

“While Malaysian EMS companies are increasingly positioning themselves within these higher-growth segments, overall visibility remains limited.

“In addition, competition within the industry has intensified, particularly with Chinese EMS players expanding their presence in Malaysia to capture market share from multinational customers, which continues to exert pressure on margins despite stabilising order flows,” she says.

UOB Kay Hian Research head of research, Desmond Chong, feels that end customers are still adjusting to the new environment post-tariffs.

And with that, local EMS players are bearing the brunt of slimmer margins, especially for consumer-centric players.

“The weaker US dollar isn’t helping either – it’s hurting the profitability of net exporters,” he opines.

Is there still hope for EMS players then?

Though it’s not in sight right now, Chong thinks there is hope, as some expect a stronger volume ramp-up in the second half of 2026.

Tan too says she sees light at the end of the tunnel for local EMS players.

Demand should improve gradually, she reckons, supported in part by the newly implemented reciprocal tariff structure of approximately 15%.

In tandem, this could enhance Malaysia’s competitiveness with Thailand, Vietnam and Mexico – all which are alternative manufacturing locations.

“This may encourage customers to diversify production footprints toward Malaysia, particularly for companies already embedded within global supply chains.”

Meanwhile, for some, waiting until things get better is not an option.

Cape EMS Bhd is a Johor-based EMS company that went public in 2023 with much investor interest. However by FY24, the company faltered into losses, marking it one of the worst performing Main Market listings in recent times.

Since then, it has returned to profitability.

For its recent second quarter results, Cape EMS posted a revenue of RM69.55mil.

And where the same quarter in 2024 saw a net loss of RM48.83mil, this time around it registered RM7.04mil in net profit.

Chief executive officer Christina Tee says the group reduced exposure to volume-driven, low-margin segments.

Instead, it focused on diversifying into higher-value industrial verticals, strengthening its engineering-led solutions, long-term partnerships and improving operational efficiency and cost discipline.

She says the approach is not to time the cycle but rather, structurally rebalance the group’s revenue generating mix.

“Our return to profitability was driven by structural measures rather than short-term cost cutting. We rationalised low-margin contracts, optimised capacity utilisation, planned out our supply chain, and focused on obtaining high-value customers,” she says.

Tee says Cape EMS’s strategy is to transition from contract assembly to value-driven industrial platform capability.

“Our ambition is to participate earlier in the value chain – in design, engineering and system integration – not just in production. This transformation is gradual, disciplined and aligned with sustainable profitability.”

For many EMS players, conserving cash and riding out the cycle may appear prudent.

But the next phase of growth may favour those willing to reshape their business models rather than merely endure the downturn.