Just What Gets Counted in the CIRCUITS ASSEMBLY Top 50?

I received a note today from an EMS company that had revenues exceeding $400 million in 2017. Why, they asked, did they make the MMI Top 50 EMS list but not the recently released CIRCUITS ASSEMBLY Top 50?

It’s a fair question, and one that comes up each year. In short, MMI calculates its Top 50 differently than we do. While it states it uses calendar 2017 EMS sales, that is demonstrably incorrect.

Key Tronic, for example, which is No. 35 on the MMI list, had sales by quarter of

  • Q1 113.6 million
  • Q2 118.5 million
  • Q3 109.2 million
  • Q4 111.7 million

for a total of $453.1 million. MMI lists Key Tronic’s revenue at $467 million, which was actually the amount for its fiscal year ended July 1, 2017.

Another example: Ducommun. It is similar to many EMS/ODM companies in that it is part of a larger corporation that has other divisions unrelated to contract assembly. MMI has Ducommun listed as 32 on its ranking, yet its EMS sales were, by quarter

  • Q1 $78.7 million
  • Q2 $81.8 million
  • Q3 $79 million
  • Q4 $77.2 million

for a total of $316.7 million. The rest of its sales come from unrelated products such as motors, switches and other non-PCB components. The no. 50 company on the CIRCUITS ASSEMBLY Top 50 was Global Brands Manufacture, with EMS sales of $430.2 million in 2017. As such, in EMS only, Ducommun does not belong. (And again, MMI used the fiscal year, not calendar year, for the revenue total, even though its chart explicitly states otherwise.)

Another reason why the lists don’t match up is in the definition of “EMS.” CIRCUITS ASSEMBLY counts ODMs such as Foxconn, Quanta, Compal, Wistron, Pegatron, etc., because they design and assemble products for other companies. (We also take care to remove the revenue unrelated to direct design and manufacturing for third-party customers.) MMI includes some of these companies but not all. But MMI does include Alpha Networks, which is an OEM, selling almost all its products under its own name.

MMI also counts revenue from bare board fabrication (Flex, Sanmina, etc.), which we remove. Yet MMI does not include companies such as ZDT, Mektron and MFlex which perform vast amounts of contract assembly although their primary business is flex circuit fabrication. We do so because their respective assembly operations are huge – in the billions. If you buy components and assemble them onto circuit boards for external customers, you are an EMS. To not include such firms is a huge omission.

I will say, it’s not easy to align companies’ EMS/ODM revenues, especially when they use different fiscal years, accounting standards, and reporting methodologies. Throw in the fact that most of these firms have businesses unrelated to pure EMS, some are private, and several report in languages other than English, and the task becomes very exacting. This certainly should not read as a criticism of MMI (or anyone else’s) methods, because 1. I know how hard it is to get everything right and 2. I truly respect the data that MMI (and others) add to the industry domain.

 

PCB Industry on Fire — Literally

The potential for fire is an occupational hazard of printed circuit board fabrication and assembly. Plating lines can be highly flammable, as can be ovens and the exhaust systems.

The deadly fire at Chin Poon in Taoyuan, Taiwan, over the weekend underscores how careful workers must be when building circuit boards — and how important it is for management to ensure safety practices are in place and followed.

The US tends to be reliable when it comes to fire safety. The last publicly cited incident was in 2016, when a minor fire broke out at TTM’s fab site in Anaheim.*

Overseas is a different story. Wurth’s plant in Neiderhall, Germany, was decimated by a blaze in 2014. The company rebuilt. Likewise, Unimicron spent millions to rebuild its site (the former Ruwel) at Geldern, Germany, following late December 2016 fire.

In Southeast Asia, blazes are all too common. Fires have been reported at ITEQ, Compeq Manufacturing, Gold Circuit (twice), Unitech (twice), Unimicron, Wus Printed Circuit and Tripod Technology (twice). Viasystems in Guangzhou was shuttered for a period of time following a 2012 blaze, and also sustained a fire in Zhongshan. Gold Circuit in Changsu .Taiwan PCB Techvest suffered a blaze in Suzhou, and Zhen Ding (ZDT) sustained one in Jiangsu.

And that doesn’t include another tragic incident which occurred last year at Unitech Printed Circuit Board in Taiwan, where four workers died after falling into a wastewater tank. They reportedly were overcome with fumes from the hydrogen sulfide present and lacked proper protective gear.

Assembly plants are risky too. Ovens and wave solder baths are potentially combustible, and it seems a cleaner explodes at least once a year.

A plant at EMS provider SVI Public Co. in Bangkadi, Thailand, burned to the ground in 2015. The last time we can recall a US assembly plant sustaining such damage was more than a decade ago, in 2005. That was a rough year for assemblers, as at least two were decimated by fires. Fawn Electronics, in North Carolina, chose to rebuild after a December fire leveled the plant. (It has since been acquired by ACDi.)

Workers at Mid-South Electronics weren’t so lucky: The EMS provider closed after a disastrous fire to its plant in Kentucky in January that year, leaving more than 700 workers out of jobs.

It’s commonplace to for management to say their workers are their greatest assets. We hope the tragedy in Taoyuan is a wakeup call for companies everywhere to review their safety practices and ensure the utmost caution is taken to prevent future disasters.

 

*Update: A good friend noted after this piece was published that ICM Controls’ captive board shop in North Syracuse, NY, was demolished by a fire in May 2017.

In Acquisition Mode, Foxconn is Turning Up the Heat

OEMs, beware: Foxconn is coming for you.

No, not just to buy your components, build your boards and run your logistics. Foxconn is coming for your data, your markets, and your customers.

We’ve been sounding the alarm about this for years. It’s not healthy for your primary supplier to be bigger than the nearly the entire rest of the market. Foxconn, pushing $150 billion in revenues, is as large as the next five EMS/ODMs combined, and more or less as large as numbers 7 through 500.

The 2016 buyout of Sharp could be chalked up to a desire by Foxconn to nab a key technology and supplier to Apple, it’s top customer. The just-announced deal for Belkin, however, coupled with its foray into developing 5G computing and cloud platforms,, suggest a drive to higher margin, branded products. Foxconn’s revenue is larger than almost everyone of its customers, and a new plan to issue $50 billion worth of stock could give it the capital it needs to go on a massive acquisition spree.

OEMs, beware.

In China, A Bet on Tariffs

Several news stories are breaking today about President Trump’s anticipated tariffs on scores of goods from China. On the list of items that will see new import duties is consumer electronics.

The effects of this move have the potential to go far beyond the administration’s stifling of a series of high-profile acquisition attempts, including Singapore-based Broadcom’s attempted not-so-friendly takeover of Qualcomm, or that of a Chinese investment firm’s deal for Lattice Semiconductor. One wonders, if the TTM-Meadville deal were in play today, what the ruling from the feds would have been.

China has successfully reached its goal of the “world’s factory,” but is it good for the US — or the world, for that matter — to have so much critical manufacturing concentrated in one place? I would argue no. Foreign companies get a raw deal trying to access the China market. The rules are set up to favor domestic companies, the government’s reach extends into all levels of private businesses, and the judicial system is weak, at best. As we have noted before, in China, “copyright” means “the right to copy.”

The US is the only economic body, except perhaps the European Union, capable of forcing China’s hand. China will not change on its own.

It would take a better fortune teller than me to predict how this will play out. On principle, some critics are primed to dismiss the administration’s move. But governments interfere in economic systems all the time. The entire US import system is one giant hurdle. So is Europe’s. It says here the risk is worth taking.

 

Talking Government Relations with IPC

In my latest podcast, I speak with John Mitchell, president and CEO of IPC, and Chris Mitchell, IPC vice president of global government relations. They discuss the trade organization’s key government programs and initiatives, its annual member lobbying event coming up in May, and the importance of lobbying by member companies. Listen in at upmg.podbean.com.

Latest Podcasts Look at AS9100D, EMS Innovation

A couple new podcasts to call your attention to.

In one, I speak with my longtime friend Randall Sherman, the EMS/ODM analyst and founder of New Venture Research, on recent developments in the market and how EMS companies are leading innovation by building intelligence into production systems.

In the second, I discuss the ongoing issues faced by the supply chain, and especially fabricators, in the wake of AS9100D.

The podcasts can be found at https://upmg.podbean.com.

 

The Bourse Identity

Foxconn’s prospectus to issue a public offering to raise money for its nascent foray in to cloud computing is less revealing for what it proposes than where the offering will take place.

Rather than leverage its newfound admiration in the US (or at least, in a couple pf offices in Washington) by accessing the Nasdaq or NYSE, instead Foxconn is opting for a far less prominent bourse: the Shanghai Exchange.

The reasons are obvious: The Shanghai bourse lacks the capital controls and oversight of the world’s dominant financial exchanges. A company, even one as large as Foxconn, can get away with a lot more, since reporting requirements and level of scrutiny are so less rigorous than in New York or Munich or London. Foxconn’s financial picture is opaque: even reporting on its revenues and profits remains an uncertain undertaking. Staying offshore makes that possible.

Finally, Shanghai is a Chinese exchange and Foxconn is a Chinese company. (Yes, I know it’s based in Taiwan. But look where the bulk of its facilities, workers, investment and attention is. And keep in mind that for many Taiwanese, China is still the motherland.) This latest move underscores that fact.

Research Grants Offer Glimpse of Future of Electronics

The sums aren’t huge, and the research decidedly blue sky, but the US Department of Energy is following through on an Obama-era initiative to fund early-stage research projects aimed at innovative technologies and solutions in advanced manufacturing.

The Office of Energy Efficiency and Renewable Energy Advanced Manufacturing Office (AMO) today announced $35 million in awards to universities, national laboratories, and for-profit and nonprofit partners to a host of universities, national laboratories, and other entities

Among those with specific implications for electronics design and manufacturing:

  • The University of Maryland nabbed almost $2.1 million to improve the balance of electrical-mechanical-thermal properties in materials for electrical wiring, contributing to a future reduction in material usage and energy waste in the nation’s transmission-line networks and in microchips. These new materials could be used to make conductors for power lines with higher strength and higher current carrying capacity and interconnects with longer lifetime in microelectronics.
  • The Dana Farber Cancer Institute received a $1.2 million grant to design and build billions of first-of-their-kind molecular 2D printers, that are atomically precise, and which could produce trillions of atomically precise products to advance atomically precise manufacturing.
  • Zyvex Labs received more than $2.45 million to create and test atomically precise materials in two dimensions using a scanning tunneling microscope that can pull individual hydrogen atoms out of a surface and a coating procedure to substitute other atoms in their place. This project will significantly advance atomically precise manufacturing for applications such as quantum computing and nanoelectronic computing devices.

Many of the other grant recipients are working on concepts similar in nature to the Dana Farber and Zyvex projects whereby atoms would be pushed around and connected. While those projects are targeting clean energy and other applications, it is possible the technology would have applications in electronics as well.

Malingerers, or Just Millennials?

Peter Bigelow pens a timely and salient column on the current crop of new employees and the differences in culture with the veteran workforce. (Sample comment: “Collaboration cannot exist if everyone shows up to work at a different time.”)

As usual, Peter makes some fascinating observations. I’ll add my own 2 cents.

Smartphones, video games, etc. have a demonstrable affect on users (of any age, actually, but particularly youth). The constant stimulation of the digital world is addicting, and physically changes your brain structures. I’ve had to institute rules for my kids (ages 12 and 14) about screen use for even the simplest of activities. (They actually reached the point where, when they would see me pulling up to pick them up, they would then get on their latest mobile game while walking to the car).

It’s no surprise, then, that this behavior carries over to the workplace. Young people are hooked.

Ironically, I’m the one in our house constantly fighting to get the kids away from their screens. My wife, who knows more about the brain than almost anyone, seems almost blasé about it. Grrrrr….

How the Chips Have Fallen

The history of consolidation in the semiconductor industry, in one slide:

Source: Fortune