About Mike

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

Whither Hong Kong?

The dispute between China and the US over trade, IP protection, human rights, and basically everything else ratcheted up a notch today as President Donald Trump announced the start of the process to revoke Hong Kong’s favored trade status with the US.

“I am directing my administration to begin the process of eliminating policy exemptions that give Hong Kong different and special treatment,” Trump said in a statement.

“My announcement today will affect the full range of agreements that we have with Hong Kong, from our extradition treaty, to our export controls and technologies. We will take action to revoke Hong Kong’s preferential treatment as a separate customs and travel territory from the rest of China.”

Hong Kong is not a major landing spot for manufacturers anymore. There are roughly 30 EMS companies of any size with operations there, per the CIRCUITS ASSEMBLY Directory of EMS Companies. VTech and Wong’s are the only Top 50 EMS companies based there. There are no bare board fabrication operations of any major size.

According to one source of mine, some companies use Hong Kong as a legal way to finish assembly to bypass tariffs on Chinese made goods from the mainland. If so, the president’s action will render that moot.

My question is, what will this mean for the scores of electronics companies that have sourcing operations in Hong Kong? While most of their business is done across borders, Hong Kong offers a more Western feel (and rules) for ex-pats. With the Beijing taking an ever greater interest in the city-state, that is almost certain to change.

I could see companies moving their program management staff elsewhere, if for no other reason than Hong Kong is expensive — maybe the most expensive place in the world for ex-pats. But if so, where would they go? And what will happen to Hong Kong if other industries follow suit?

‘The Era of Offshoring US Jobs Is Over’ … or Is It?

That’s what the US Trade Representative says in an editorial in the New York Times today. And he gets the drivers right, mostly. But the results? “The United States lost five million manufacturing jobs. That, in turn, devastated towns and contributed to the breakdown of families, an opioid epidemic and despair.”

That’s just a crazy extrapolation. The US was at 3.1% unemployment prior to Covid-19.

Repeat after me: There. Were. More. Jobs. Than. Qualified. Workers.

For two decades, the no. 1 complaint I’ve heard from US business owners is the lack of manufacturing talent. Even in times of higher unemployment rates (the last two months notwithstanding), managers consistently noted the lack of basic communication and math skills among the workers available.

In his op-ed, USTR Robert Lighthizer adds, “If you want certainty, bring your plants back to America.”

It’s not that simple. You need the whole supply chain. And you need an end-market. The US, at 327 million people, isn’t big enough to sustain a company of any real size; those firms must be able to sell into other (larger) markets too.

And all those other big markets (China, Brazil, EU, etc.) have their own “make local” requirements and incentives.

I wish Lighthizer were right. But I’ll say it again: The US does not have enough worker talent to handle manufacturing at the cost necessary to satisfy the US market.

Make in India?

A colleague asks whether companies are looking at India as a country they can source electronics goods.

Good question. I would say that right now it’s not high on the list. It has a long way to go to develop the infrastructure and mass of supply chain companies dedicated to electronics (component manufacturers, laminate suppliers, chemistry suppliers, etc.). 

But … the bloom is way, way off the rose in China. China is less attractive from a labor rate perspective, and coupled with the tariffs, firms were already looking at alternatives even prior to Covid. See below for the year-over-year changes in electronics imports to the US from certain nations:

US electronics imports from selected nations, 2017-19

India’s electronics imports to the US grew 20%+ year-over-year in back-to-back years. Granted, it was starting from a low base: imports in 2016 (the base year) were just $754 million, and so even with the increase the total is just over $1.1 billion. Vietnam, another big gainer, is at now at $22.7 billion. China, even with the dip in 2019, was at $170 billion.

I do think US companies will to a greater degree be looking at nations outside China as potential manufacturing centers. India’s massive population continues to make it attractive of course. Now it needs to attract a few more assembly companies, which in turn will drive the suppliers to locate there.

Post-Covid, Will Connections Be Scarcer?

A friend writes to say he’s been about the effects of “social distancing” policies. Will they have a permanent effect on our lives, he wondered. And will they impact events such as trade shows?

It wasn’t the first time I have been asked that of late. The subject also came up on a couple of podcasts I’ve had the good fortune to do, one with Judy Warner of Altium and the other with Mike Konrad of Aqueous Technologies.

My short answer is, I think there will be an impact, but it will swing toward more contact, not less. Indeed, after being cooped up for so long, I think people will crave human connections. Moreover, I don’t think it will have an effect on trade shows. In fact, I think this will reveal lots of holes/flaws in inter-/intra-company digital communications, which gives us all something to work on for the next quarantine (heaven forbid). 

We aren’t the only ones contemplating what happens next. The Boston Globe this week published a piece in which several self-styled business futurists and science-fiction writers expect the world will look like next fall/winter.

I can’t say I’m impressed with most of their responses, which if anything feel exaggerated for effect. But see for yourself.

UP Media Statement on Covid-19

Like all the companies we serve in the electronics design and manufacturing industry, we are closely watching the world’s response to Covid-19.

All UP MEDIA GROUP staff work remotely, and our operations should continue as normal. As of this notice, our websites, magazine issues, podcast and newsletter will be updated and published per the schedule in our 2020 Media Kit.

We currently intend to hold the PCB2Day workshops scheduled for June in Austin, TX. We will provide regular updates to all sponsors, speakers and registrants as the situation on the ground becomes clearer.

PCB West 2020 at the Santa Clara (CA) Convention Center remains on track to take place in September. Confirmation letters to speakers are being sent this week, and our conference program and registration will be available by early May.

The health of our employees, contributors and customers is paramount. We will take any measures to ensure we do not subject any staff, contributors or customers to unnecessary risks due to the coronavirus.

We are open and ready to serve you during these difficult times. Please contact Mike Buetow (mbuetow@upmediagroup.com) for editorial, Frances Stewart (fstewart@upmediagroup.com) for shows, and Brooke Anglin (banglin@upmediagroup.com) for advertising.

Sincerely,

UP MEDIA GROUP staff

ODMs-OEM Gap Narrows Further

OEMs have long been told that, as their suppliers, EMS companies would not compete with them.

Then EMS companies added design services. “We won’t compete with our customers.”

Then EMS companies added full turnkey services. “We won’t compete with our customers.”

Then EMS companies added logistics services. “We won’t compete with our customers.”

Then EMS companies started calling themselves ODMs.
We won’t compete with our customers.”

I think all pretenses are over. Check out this latest report from DigiTimes from the Embedded World trade show, where Pegatron exhibited an all-in-one dashboard for smart driving vehicles.

Still not competing? Think again.

Is the Supply Chain Holding On, or Holding Out?

Foxconn, for once, was probably the first company in the electronics manufacturing sector to acknowledge the looming financial hit from the coronavirus. Apple, which relies on the Taiwanese ODM for the majority (?) of its production, was naturally forced to follow.

Speak no evil?

Jabil and Plexus have now lowered near-term estimates, and market research firms are piling on, with IDC downgrading its outlook for smartphones and PCs and DigiTimes Research slashing its notebook shipment forecast by a third or more.

In a timely column on CIRCUITS ASSEMBLY, EMS expert Sue Mucha lays out a strategy for handling sharing bad news with suppliers and customers. “Transparency matters,” she says. “The goal shouldn’t be to paint a rosier picture than the situation dictatesThe goal is to fill the communications void and establish trust that your company will provide news as the situation evolves.”

That begs the question, why haven’t more firms come forth with sales or profit warnings? Are Apple, Foxconn, Jabil and Plexus the only ones that will be affected? Or are they simply the vanguard?

Coronavirus: Curse, or Blessing in Disguise?

I’m not one to make light of health epidemics, especially given that my college major was initially epidemiology. But the global slowdown in electronics demand — underscored by the earnings reports over the past couple months — is poised to worsen in the grip of the coronavirus outbreak, which started in China and has now reached more than a dozen more countries.

In response, businesses in Wuhan, the epicenter for the disease, have closed and Chinese government has effectively quarantined the entire city of 11 million. Wuhan is the capital of Hubei province, and between the two entities there are roughly 1,500 factories and related facilities.

Among the electronics manufacturers affected at ground zero are Avnet, Siemens, and Foxconn. After Hubei issued a mandatory shutdown notice, Foxconn furloughed more than 13,000 workers at its campus there. (The plant generates an estimated $300 million in revenue per year.)

As the disease spreads, so too have the shutdowns. IMI announced last night it is suspending operations at plants in Shenzhen, Jiaxing, Chengdu and Suzhou. The furloughs will last up to several days.

While electronics assembly plants can be brought back up to speed fairly quickly, the impact missing even a few days of revenues will be felt in the quarterly results. And here’s the possible silver lining.

Many companies have been reporting weaker results in the most recent quarter. For instance, Celestica’s revenues were down 14%, Amphenol’s dropped 3.3%, and Sanmina’s were off 16%. TTM went so far as to sell its entire mobility unit. Plexus saw sales rise, but is cutting an entire design unit. (UPDATE: Flex reported sales down 7%, adding to our picture of how widespread the weakness is.) Often the US-based firms see a slowdown in presidential election years as OEMs take conservative approaches to ordering ahead of potential administration changes. The outbreak, deadly and unwished for as it is, gives cover to management for any recurring revenue drops, at least for a quarter or two, and perhaps longer if the coronavirus gains a wider foothold. A cynical view, to be sure, but hardly an unrealistic one.

We need only look back to 2003, when the SARS outbreak came on the heels of a worldwide business slowdown and according to one analyst “accelerated that downturn and spread it to many other countries in Asia.”

Already, airlines are bracing for lower capacity utilization and Asian firms are fearing the worst as businesses enact travel restrictions. Again as with SARS, the timing comes as Asia (and most of the world’s major economies) is experiencing tepid growth, and the best way to stop a recovery in its tracks is to sever the flow of goods and services.

For everyone’s sake, let’s hope this virus burns out fast.

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.