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
Forcing out American companies from China’s electronics supply chain could have a major impact on Chinese manufacturers. It would also likely hasten strategies by American technology firms to diversify their supply chains away from China.
Yet if Beijing were willing to take that hit, many companies would struggle to immediately replicate production elsewhere. China’s density of component makers and assembly factories is unmatched around the world.
“It’s a really high-risk way to go about it,” said Andrew Polk, a founder of Trivium, a consulting firm in Beijing. “They are effectively forcing companies to choose, and companies will probably choose the U.S.”
Much has been made over whether Western companies will bail on China if it were to put the screws to them on trade. But if China were to retaliate against the US by shutting down access to certain markets or supply chains, is it unrealistic to think any Chinese companies might relocate as well?
As KeyTronic batted away the proposals, Cemtrex grew even more bold, asserting in a followup statement that its intended prey could do with better management. “A combination of the two companies will unlock significant shareholder value for both companies, by enabling cost savings, higher earnings per share and a more attractive price to earnings ratio than either company is currently maintaining.”
Eventually KeyTronic grew a bit aggravated with the unwanted attention, calling the suitor “unqualified” as a buyer. “Our initial research shows [Cemtrex] reports approximately $45 million of EMS revenue. In our opinion, this does not qualify [Cemtrex] to make any statements as to how it might operate an EMS business like KeyTronic which is over 10 times [its] current size in terms of revenue.”
The overtures ceased shortly thereafter. By the following January, Cemtrex was consolidating its EMS plants and selling off operations.
Still, even with that episode well in the rearview mirror, I have to think that wherever he is today, KeyTronic CEO Craig Gates must be smiling.
So while Huawei is a $100 billion company, larger than IBM, Sony, Hitachi, Panasonic and all but a few other tech firms, the declaration could have tentacles that reach far beyond the Chinese OEM. Even if all the defense industry primes, for instance, buy all their boards onshore (doubtful), many others do not, including the financial markets, and key industries such as nuclear, power, and so on.
Almost every North America-based board today shop brokers boards from Asia, mostly China. Their suppliers are, in turn, generally located in China as well. That includes the vast majority of the laminate industry. Sure enough, we are hearing reports of major laminate makers suspending shipments of key materials, including ones for the US defense primes, because of the executive order.
What’s the alternative? North American board fabricators lack the capability and capacity to take on high-volume production. The EMS industry has the capability, but not the capacity. And that doesn’t begin to address the region-to-region cost differences.
Then there’s Washington. The legislators are simply ignorant when it comes to understanding supply chain issues. The executive order targets companies that could put the US economy at risk. Any logical read of that would see that the telecom industry is only one part of the equation. Wall Street is equally at risk.
Just because Cisco or Juniper or HP or IBM or Dell or Arista don’t have Chinese names doesn’t mean they aren’t as reliant on the China supply chain as Huawei. Same goes for their EMS networks. Intel has six chip fabrication plants and three assembly/test sites. Two are in China. Qualcomm is a minority owner of SMIC, which has nine plants open or planned in China. It also has a JV assembly/test house with Amkor in Shanghai.
Take a look at HP’s supply chain. The OEM is sourcing product from China facilities of Foxconn, Jabil, Flex, Celestica, Inventec, New Kinpo, Wistron, Pegatron, Qisda, and TPV, among others. The workers on the HP lines number in the tens of thousands. That can’t be replaced easily, if at all.
Not just the large shops stand to be squeezed. Besides relying on China for raw materials, many smaller North American fabricators also outsource certain services and otherwise procure other relatively finished goods from there, such as engineering or laser drilling or mass lam boards.
Insofar as consumers are concerned, it’s probably a good thing this isn’t happening during the Christmas ramp. But that date is drawing near. Even without the tariffs, given the looming capacity constraints, prices are bound to spike.
And even if the questions surrounding Huawei are sorted out — a big “if” — the fun won’t stop there. At this writing, the US government is considering action against other Chinese OEMs, including ZTE and Hikvision.
Which EMS has received the most private equity funding over the past few years?
Chances are, it’s Tempo Automation. The San Francisco-based contract assembler just added another $45 million (that’s right) in new capital. That’s on top of the $20 million it garnered a year ago, which it used to build a new factory. Overall, we estimate Tempo has raised around $75 million over its six-year life.
Investors are falling in love with Tempo’s emphasis on software-based manufacturing. It has caught the attention of blue chip OEMs like Lockheed Martin, which is also a customer and investor. The latest round of funding, called a Series C, was led by existing investor, Point72 Ventures and includes an array of new and existing outside investors investors. Series C is typically the final funding round prior to an IPO or acquisition.
In an era where PCB assemblers aren’t rushing to go public, this is an interesting development. Privately held Tempo does not disclose its revenue, but it’s likely to be less than $100 million. That level of investment suggests a high level of confidence by outsiders that Tempo is on the right track.
Terry Gou, Foxconn founder and chairman, is
contemplating a run for the presidency of Taiwan. Should he go for it?
Given his wealth – an estimated $7.8 billion – and stature
in Taiwan, some comparisons to US President Donald Trump will be inevitable. There
are distinct differences in upbringing and temperament, however. Gou is a
self-made man, having launched Hon Hai as a components supplier in the early 1970s.
He built the company brick by brick, expanding into new markets as opportunities
arose, and taking advantage of mainland China’s proximity and low cost-model.
When the West started looking for cheaper manufacturing alternatives, he was
He has generally been media-shy throughout his career. It was only after Foxconn came under scrutiny as workers started jumping off its roofs that NGOs began putting pressure on Apple, Foxconn’s largest customer, and Western media took note. Long articles in The New York Times,Wall Street Journal and Forbes followed.
But is Gou the guy? Whether his domineering approach will be welcome even in Asian cultures today is unclear. In the wake of the Enron collapse, in 2007 the WSJ quoted him as saying, “Even for those of us who lived through Enron, it’s hard not to come away disgusted. I always tell employees: ‘The group’s benefit is more important than your personal benefit.’ ” At the time, a typical mid-level assembly-line worker in Taiwan earned about $230 a month, including overtime pay, while Gou was a multibillionaire.
Neither is the inherent conflict-of-interest with China,
where Foxconn has the majority of its manufacturing capacity and business
interests and employs hundreds of thousands of residents. Taiwan’s self-styled independence
stature could be in question were Gou come to office. How would he priorities decisions
that could mean risking his financial standing?
Citing divine inspiration, Gou told media that he
seeks “peace, stability, economy and future.” Those are worthy goals. Given his
track record as an employer and his financial dependence on China, how he will achieve
them deserves scrutiny.
China is a country that should be viewed through its actions, not its words.
It’s important to keep that in mind when considering the news today from the Associated Press, which is reporting China will cease its practice of forcing multinational companies wishing to do business there to share their IP.
If this turns out to be true — and the China legislature ratifies the law — one of the big trade hurdles between the US and China will be eclipsed.
As usual, the devil’s in the details, and this case is no different. Per the AP, the new rule simply bars “government authorities” from making demands of foreign firms. So if, for instance, the steep duties China places on imports remain in place, an MNC will almost have to partner with a domestic company.
And that’s the rub. As the AP reports: “[T]he central government routinely says it has little control over commercial agreements between Chinese and foreign firms.”
So for most firms, the Catch-22 will remain.
China has a history of saying one thing and doing another. Sometimes it does so brazenly — such a ignoring WTO trade practices or currency interference. Other times it is on the sly, such as when it says it doesn’t believe in meddling in other nations’ affairs all while it’s meddling in other nations’ affairs.
There aren’t many women in charge of major EMS companies today. Indeed, a quick look at the CIRCUITS ASSEMBLY Top 50 shows there are none.
Women are among the leadership teams at some top companies. Creation Technologies, for instance, has a female CFO and chief culture and people officer (read: HR). But no woman has occupied the top spot at a major EMS since Gayla Delly suddenly and unceremoniously left Benchmark in fall 2016.
Which makes it all the more exciting to see Flex naming Revathi Advaithi chief executive of the EMS company. Advaithi, 51, has impeccable credentials. She is an engineer with an MBA, and was wooed to Flex from Eaton Corp., where she headed the largest division of the $20-billion company.
Flex has all sorts of incentive to go after a rising star like Advaithi. Its big bet on the consumer market with Nike cratered, and the company’s stock went with it. The stock price dropped about 46% in the past year, much worse than the industry average (8% loss). Flex has wound down its Nike manufacturing operations in Guadalajara, taking at least a $30 million hit.
Industrial, on the other hand, is a growth market. Based on the most recent quarter, it represents a $6.6 billion a year business for Flex, and is growing in double-digits. Moreover, as an end-market it remains stubbornly captive, with estimates of just 20% EMS penetration. Advaithi could help unlock that potential. Her standing as a director with defense giant BAE, another mostly untapped market by Flex, couldn’t hurt either.
It’s refreshing and overdue to see a woman on top in our industry. According to Fortune, only about 5% of the Fortune 500 companies have female chief executives. Notably, those firms include GM, Lockheed Martin, IBM, Oracle and General Dynamics — all major customers of the electronics industry. If we are serious about opening the door to the next generation of engineers, we need role models with all kinds of backgrounds. When a woman looks for her future in the crystal ball, it’s only right to see a woman looking back.
Wisconsin taxpayers might feel a little like Charlie Brown getting the football yanked out from under him again. Not only does it look ever-less likely Foxconn will create anything close to the 13,000 local jobs it promised, but towns like Mt. Pleasant are already on the hook for hundreds of millions of dollars, the net effect of bonds it issued to pay for the initial construction. And if Foxconn doesn’t deliver, the state must pick up whatever the municipalities cannot pay back.
In any case, when it comes to Foxconn, actions speak way louder than words. Let’s wait to see whether anything actually gets built before commencing with the back-patting.
We are thrilled to announce STI Electronics as our EMS Company of the Year for 2018.
CIRCUITS ASSEMBLY selects one company each year for this distinction. In making the determination, we look at profitability and sustained excellence among their peers over a period of years. We also look at the company culture and uniqueness of their business or service model, and assess whether we think it is sustainable over time and across generations of management.
In that regard, the evidence strongly supports STI. It is downright stunning to see the breadth of services the Madison, AL-based company offers, especially given its size (under $25 million). On a daily basis, STI performs traditional SMT, box build, failure analysis (it has a complete lab), cleanroom die bonding, and operator training. And at the end of this month, it will introduce an OEM product it is developing with a third party.
Read CIRCUITS ASSEMBLY’s profile on STI Electronics at circuitsassembly.com and in the February issue of PCD&F/ CIRCUITS ASSEMBLY.
The January issue of of PRINTED CIRCUIT DESIGN & FAB and CIRCUITS ASSEMBLY is now available. Our cover story, from Skyworks, looks at as-shipped vs. mounted height for BGA and LGA packages.
When a component is surface-mounted to the motherboard, the x- and y- dimensions do not change. Not so for the height. LGA height increases; BGA height decreases. A new study shows how an increase in as-shipped thickness can enable greater electrical performance and reduce quality risk.
This month’s other highlights include:
Using Maxwell’s equations to solve transmission line problems
Determining Df and Dk tradeoffs among various laminates
Bare board x-ray inspection
Busting the myth of PCB design at the college level
A profile of EMS firm Green Circuits
Ten steps for achieving good DfX
The latest happenings among the IPC Designers Council chapters
And Peter Bigelow asks if smaller manufacturers outmaneuvering the big ones.