For Tom Hicks, Like Father Like Son?

Those who have been in the PCB industry since at least 2001 will likely remember the New York buyout firm known as Hicks, Muse, Tate & Furst. Better known as Hicks, Muse, they laid waste to the industry, buying up the largest fabrication shops like AT&T’s 400,000 sq. ft. plant in Richmond for dollars on the penny (you read that right), then attempting the same with EMS, before watching it all fall to pieces with multiple bankruptcies and revaluations. (The entity known as Viasystems eventually landed under the control of Tim Conlon, a highly capable executive who right-sized the company and made it profitable enough to sell to TTM in 2015.)

One of the beneficiaries of the merger mania in the late 1990s and early 2000s was Bob Herring.

Not once but twice, Herring built up and sold printed circuit board fabricators to larger bidders. The latter time, Herring sold Herco Technology and a second firm, Synthane Taylor, to Teradyne for about $122 million in stock.

You know how this ends. Teradyne’s stock collapsed, Herco was shuttered, and then came the lawsuits.

Herring later turned his sights to media, launching a news network that is popular in certain segments of the American public.

Tom Hicks of Hicks, Muse turned his sights on sports, buying — and bankrupting — the Dallas Stars hockey team and Texas Rangers baseball team, among others.

Tom Hicks’s son is now in the game. Under the eponymous billing of Hicks Equity Partners, Tom Hicks Jr. is apparently attempting to corral fellow money-men to pony up about $250 million to a certain news network.

And who owns One America? Bob Herring.

As the safe harbor warning every equities firm is obligated to announce says, past performance does not guarantee future results. But if I were one of Junior’s friends, I’d keep wallet in my pocket.

At AltiumLive, Lots of Sun (and One Big Cloud)

by Brooke Anglin

One of the first things I heard when I arrive at AltiumLive last week was was how much they loved the recap of the event my colleague Chelsey Drysdale wrote last year. They added that Chelsey truly captured what AltiumLive is about. Talk about pressure!

Let’s start at the beginning.

The Piano Arc contains a total of 12 PCBs.

Drinks are on Them. The week (well, three days, but they really pack a lot in!) kicked off with a great reception on an outside terrace at the Loews Coronado Bay Resort.  Dave Starkey, the engineer who designed and built the Piano Arc — the circular piano used by Lady Gaga’s pianist, among others — was there. So was the pianist. They displayed the unit, a 360-degree custom keyboard, with one of the panels removed, exposing the PCBs.  Altium director of community engagement Judy Warner met Dave at a user group meeting in San Diego, heard his story and recruited him for the event.  In case anyone wants to know the piano has 288 keys, a total of 12 circuit boards and only cost $57,000.

I saw our customary PCB West speakers Suzy Webb, Rick Hartley, Gary Ferrari and Eric Bogatin and met a lot of engineers.

Getting Younger. One of the things you note about AltiumLive is the demographics. It’s a younger crowd than you typically see at industry events. Eric Bogatin noted this in the first keynote (AltiumLive had not one, not two but three keynotes). He brought some of his students, had them stand up for recognition and encouraged hiring companies to talk to them.  That drew a good laugh from the crowd.  In his talk, he pointed out that while many designers will be retiring in the next 10 years, AltiumLive gives us reason to think a new generation is coming on strong.

Keynote #2 featured a celebrity from outside our industry. Jor Grand of Grand Idea Studio has a short-lived TV show called Prototype This! on the Discovery channel. The concept, which was similar to Mythbusters, was about the viability of gadgets and technology and how engineers feel a since of winning when a product doesn’t work the first time, but they don’t give up until their creation finally works successfully.  While the show lasted only one season, Grand shared several clips and generated lots of laughs.

Finally, the main event: Altium rolled out its much-anticipated Altium Designer 20 ECAD. VP of marketing Lawrence Romine detailed the new “push and shove” capabilities that enable routing of complex HDI boards and ramp up design times over 20%. (For more on the tool, click here.)

Cloud in their Eyes. This was the third year of AltiumLive, and the multi-city event (another is being held in Frankfurt this week) draws 500 designers. The company grow is equally impressive. Last year 2018 Altium saw over 8,000 new users for its Designer PCB CAD tool, and on average Altium users do over 10 designs a year.

Looking ahead, Altium wants to move toward the cloud, something the industry has been avoiding for years. Its has added real-time collaboration, and hopes to bridge the gap between manufacturers and designers.

Not surprisingly then, AltiumLive focused as much on tomorrow as on today. The highlight of the event was the Robot Build and Battle. Attendees split into teams of six or more. Ours had nine; eight engineers, from all of the country, and me. I was cheerleader, motivator and general handyperson. (They said I sounded like each of their bosses … I beg to differ!) Team Sierra beat last year’s record, but we weren’t far behind.  Amit Bahl of Sierra Circuits told me he didn’t realize just how geeky our industry was until the robot build. Such a fun and educational event!

Brooke Anglin is senior sales associate with PCD&F/CIRCUITS ASSEMBLY.

The Disruptors

In his most recent monthly column my friend Gene Weiner pointed out the irony of calling a printed circuit board a commodity. “When did printed circuits become mass-produced unspecialized products?” he asks.

As I told Gene, it’s true PCBs are custom, but in some (many?) instances they are highly mass-produced. Think residential LED lighting, or game consoles or the most popular phones, etc. My sense is that calling them “commodity” or “custom” is a bit of a red herring. Large OEMs call PCBs commodities even though they know each is specific to a particular program. I think to most its a catchall word for “volume procurement.” 

There is real tension on costs between customers and suppliers, and without artificial price bottoms I can see no reason that won’t continue. I think it’s highly unlikely sellers will be able to change the pricing model as long as the process technology remains essentially the same. It’s too entrenched, and often the buyers (which more and more often are EMS companies) have lower margins than the fabricators, so there’s no incentive for them to switch to a pricing model that will cost them more. A move to a different process technology (3-D/additive manufacturing) might well change the pricing curve.  

It’s not that simple, of course. As double-Ph.D. and former CTO of Multek Craig Davidson once said, “Never underestimate the tenacity of incumbent technology.” It’s perhaps the best quote on technology adoption I’ve ever heard.

I used to think that with the many brilliant minds in our industry, we would successfully disrupt ourselves — in other words, the ideas that obsolete our current ways of doing things would be conceived and implemented by one of our own — maybe some genius in the basement of Apple or Intel or IBM. I’m less confident of that now.

I now lean toward the notion that the true disruptive change will come from someone outside our industry who has knowledge of both hardware and software and who uses a truly novel process to develop a widget that the public embraces. The mass appeal of the product (not the process, to which the general public is ambivalent) will be the proof of concept. And the investment money will follow.

Not with a Bang …

Cemtrex’s run in EMS ended today with a decided whimper. The New York-based company sold its remaining contract assembly assets to a German private equity group for about $7 million.

It brings to a close one of the stranger stories in recent EMS memory. Cemtrex grew through acquisition, buying up a German EMS company, and later another, and green-fielded plants in Romania and India.

Focus was not its strong suit. Along the way, it became involved in virtual reality software and proprietary IoT device design and manfuacturing. It set a goal of $500 million in revenue, but its most recent quarterly results, released this week, put it on a run rate of about $90 million annually, which is behind its pace of just a year ago.

Then there was bewildering and lame hostile takeover attempt of Key Tronic, at the time a Top 50 EMS in terms of revenue. In offering a 1:1 stock swap, Cemtrex called out the larger EMS for its seemingly underwhelming profitability. Key Tronic’s response — at once clinical and dismissive — was one for the ages: “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.” 

Cemtrex never filed the paperwork for a potential acquisition and the proposal quietly vaporized. And today, so did its aspirations of EMS supremacy.

Silicon Valley Not Paved with Gold

Is the bloom off the rose in the Silicon Valley?

For years, manufacturers have insisted on putting factories in the greater San Jose area. The CIRCUITS ASSEMBLY Directory of EMS Companies lists hundreds of entries with Silicon Valley zip codes. Damn the costs — siting near customers — actual or desired — takes precedence!

In the first quarter, the most up-to-date data available, industrial space vacancy rates were 2.7%, near an 18-year low. That’s despite more than 200,000 sq. ft. of new industrial space coming online in the period, on top of about 3 million sq. ft. of new industrial space that came online last year.

Ironically, industrial space rents, while climbing, are a relative bargain. The average rent was $1.27 per sq. ft. in the March period, more than twice that in 2010 ($0.60 per sq. ft.), but well below the national average. That comes to more than $381,000 in rent a year for a modest 25,000 sq. ft. factory. But tack on energy, and labor costs — unemployment rates are not only lower than the national average, but workers earn a small fortune — and it all adds up to a very expensive enterprise.

Today the pendulum is shifting, if only bit by bit. We are seeing furloughs, layoffs and even some big names starting to blink. Jabil, Creation Technologies,
and this week, Benchmark are among those closing factories in Silicon Valley.

Will more follow? In an industry where margin and cash flow often make all the difference, it won’t be a surprise if more players head for lower-cost pastures.

Trade Wars Battlefield Goes Beyond US-China

The US-China trade war shows no sign of abating. And as predicted, it is wreaking havoc on the electronics supply chain. While OEMs like Huawei get most of the headlines, suppliers of semiconductors are feeling the pain.

Even assemblers are getting caught in the crossfire: When the US government initiated a ban on doing business with Huawei, one of its EMS firms, Flex, withheld a reported $100 million in materials and shipments. According to some Chinese blogs, the OEM now plans to sever its business ties with Flex.

Less publicized, but perhaps just as crucial, is the ongoing spat between Japan and South Korea. The Asian nations are locked in a dispute over a group of uninhabited islands located in the straits between the two countries. Relationships are further frayed over issues of war reparations dating to World War II. Japan has struck first, taking steps to put controls on exports of key semiconductor fabrication materials to South Korea for fear they could be used in military applications. South Korea has not publicly countered, but the nation is home to two of the three largest memory device makers.

The tension between Japan and South Korea further complicates an already cloudy memory market picture. DRAM prices are already threatened by a global inventory glut, leading Gartner to forecast a 4% price drop this year. By choking materials supplies, Japan could inadvertently help lower inventories and boost margins. But there’s a point where parts availability could tip the wrong way, ratcheting up lead times and leaving buyers scrambling for sources.

By sales, Samsung and SK Hynix manufacture about 23% of the world’s memory chips. Their combined sales last year topped $110 billion. But there’s no simple answer. Japan is in many cases a sole source of many of these critical materials. How long will South Korea be willing to suffer? And what lengths will it go to to protect its semiconductor dominance?

What’s the Difference?

Here’s the headline:

F-35 Jets: Chinese-Owned Company Making Parts for Top-Secret UK-US Fighters”

Sounds dramatic.

As it turns out, Exception PCB, a UK-based fabricator, is building circuit boards for the next-gen airfighter. And Exception is owned by Shezhen Fastprint, the Chinese fabricator.

All angst aside, however, how is this different than TTM being the largest board supplier to the US Department of Defense?