Andrew Maclellan EBN (09/22/2003 3:00 PM EST)

Working in the electronics field in any capacity means keeping abreast of the influx of new industry acronyms. The increasingly complex electronics manufacturing arena is no exception.

The latest term identified by companies and analysts in the past six months or so? Contract Design Manufacturer (CDM). Adding to what already resembles alphabet soup, this new category of contractor is broadly defined as a manufacturer that also provides design support services to ease the transition of customers' high-value products from prototype to mass production.

Once upon a time, the term contract electronics manufacturer (CEM) aptly described the majority of companies operating in the sector. Soon, however, the acronym became self-limiting in that it failed to account for the growing number of CEMs that not only made products but also assumed responsibility for sourcing, procurement, inventory management, and a host of other functions.

So the industry lobbied for a name change and became more generally known as Electronics Manufacturing Services (EMS) providers.

This worked well for a few years until a new breed of competitor--the Original Design Manufacturer (ODM)--began cropping up in Taiwan and mainland China. These companies do more than build products or offer services under contract to their customers and possess two characteristics that distinguish them from their EMS competitors: 1) they often own the IP used to design and build their customers' products, and 2) breaking a longheld EMS taboo, they sell products under their own brands--in effect competing with their contract customers.

Specializing primarily in high-volume commodities like PCs and cell phones, ODMs nevertheless have been able to reap better margins than EMS providers. But they have also begun to break down the barriers keeping EMS from moving more deeply into contract product design.

Indeed, the CDM model marks a movement by EMS providers to differentiate themselves from ODMs by taking on higher-end, higher-value, customized product design and manufacturing.

Bill Coker, director of sales and marketing for Elcoteq Americas, recently pointed to the differences between the two by noting that a CDM doesn't compete against its customers; shares, rather than owns, product IP; shares inventory risk and product liability; and has a global manufacturing footprint.

This is more than a passing trend. The advent of the CDM model is a significant evolution and adds another dimension to an already busy landscape. Amazing the power of three letters. OR

E-mail comments to Andrew MacLellan at amaclell@cmp.com.