Will Juki-Sony Talks Get Others Going?

Industry chatter has long said M&A activity among the major placement companies is inevitable.

Yet throughout the gut-wrenching downturn of 2001-02, the widespread pause in 2008-09, and the subsequent fallout starting last spring, nothing concrete took place.

Sure, a few companies have changed hands — Mydata was bought out by Micronic, Dover divested Universal Instruments to Francisco Partners, which in turn sold it to Patriarch Partners, ASM took Siplace off Siemens’ hands, and H2 Equity Partners did the same for Philips with Assembleon.

But there are more than 25 pick-and-place OEMs around the world, and despite fierce competition the number is actually growing.

Today, Juki and Sony announced the signing of a non-binding memorandum of intent to discuss the possible integration of their respective surface-mount technology equipment and related businesses. Will this finally get things rolling?

Under the MOI, Sony and Juki would integrate their SMT businesses under a newly established company, whose name is yet to be disclosed. Both companies are ponying up cash for the “startup,” Juki presumably providing the lion’s share as stands to receive two-thirds of the shares in the new venture.

The deal could be consummated by September if everything holds up.

It’s unclear what a merged entity’s worldwide market share would be, but I suspect it would be the largest in the world. Juki currently is neck-and-neck with Yamaha and Fuji in Asia, and is probably the current leader for new units sold in the US. Sony hasn’t been able to penetrate the US, but has done well in Mexico, where many Japanese OEMs have or had larger factories. It also sold thousands placement machines to Foxconn, reportedly as part of a an arrangement under which Sony outsourced production of various consumer electronics. Latin Americas is up for grabs. Siplace and Assembleon continue to hold sway in Europe, but others have made inroads of late.

This could also affect Juki’s deals as a full-line distributor for other suppliers. Sony currently makes everything from screen printers to placement machines to AOI. Juki resells printers (GKC) in the Americas and Europe, as well as various soldering equipment lines.

The bigger question, however, is will this spur other M&A? Not many companies align so neatly as Juki and Sony. So while many placement companies have been on the block for some time, and the lure of better share, less competition and — hopefully — greater margins is always on the CFOs’ minds, the merging of differing technology, approaches and cultures (not to mention the acquisition price) haven’t been enough to seal any deals thus far. And we don’t see that changing any time soon.

Troubled Waters Ahead

Disputes between China and Japan over ownership of several small islets, known as Senkaku in Japan and Diaoyu in China,  are increasing and threatening to draw the U.S. into a potential fire-fight and conflict between 2 of the world’s top 3 economies. Violent anti-Japan protests this past week are threatening the $300 billion annual economic ties between the two nations. A wide range of firms from electronics giants Sony and Panasonic to Japan’s big three carmakers — Toyota, Honda and Nissan — temporarily halted production at some or all of their China-based plants.

Japanese electronics (and other) manufacturers are reported to be making a beeline to the Philippines. These include Furukawa Electric, Murata Manufacturing, and Brother Industries. The Philippine’s Trade and Industry Undersecretary Cristino Panlilio stated that the government is also soliciting suppliers of these Japanese companies in order to nurture local supply chains.

Job creation. Foxconn’s newly announced venture near Sao Paulo, Brazil, is expected to create tens of thousands of jobs by 2016. One has to wonder whether Americans or Europeans will provide the basis of their necessary supply chain needed for the announced board, part, and device production. Or, will a new “home grown” series of material and specialty chemical suppliers be the end result? Will production assembly equipment come from Europe? America, China, or Asia? The numbers will be big!

Samsung toeing the mark? Following its recent loss IP suit loss to Apple, Samsung announced that it would audit working conditions at 249 Chinese subcontractors and suppliers, including 105 that produce goods solely for Samsung. This major decision, coupled with Apple’s main provider Hon Hai’s (Foxconn Technology Group) decision to tackle working condition violations among its 1.2 million workers assembling iPhones and iPads, are certain to change the way that Western and other “foreign” companies do business in China. Samsung stated that it would terminate contracts with suppliers that do not take corrective actions when found and notified of violations of Samsung’s labor and working condition policies.

Hitachi Exits TVs

Hitachi plans to outsource all its television production, becoming the latest Japanese OEM to exit TV manufacturing.

Which EMS company will benefit?

My money’s on — who else? — Foxconn. A year ago, Hon Hai (Foxconn’s trading name) reportedly was planning to invest in Hitachi’s Display Products Group. (Foxconn has a history of supporting the companies with which it hopes to do assembly or ODM business, and already builds TVs for Sony, Sharp and others.)

Meanwhile Flextronics, which has opened up considerable capacity by exiting the ODM PC business, does not seem to be a contender. The EMS company says it is trying to reduce its exposure to high-volume consumer electronics (along with its inherent cyclicality and margin-challenged ways).

Some of the other Taiwanese ODMs, such as Wistron and Pegatron, may be in the mix. Toshiba has history with both. Toshiba also  outsources some television production Konka Group in China.

EPA, Dell, Sprint and Sony Have New E-Waste Policy

The US Environmental Protection Agency made a Big Announcement this week in Austin, TX, regarding e-waste and product stewardship — the announcement came as EPA head Lisa Jackson stood beside leaders from Sprint, Dell and Sony.

In Austin, EPA Administrator Jackson signed a voluntary commitment agreement with Dell CEO Michael Dell and Sprint CEO Dan Hesse to promote a US-based electronics recycling market. Sony Electronics Inc. representatives were apparently present and “also committed to improving the safe management of used electronics,” but it wasn’t clear whether they signed anything. But their presence indicates good intentions.

“Americans generate nearly 2.5 million tons of used electronics each year,” said Chris Nowak of Actio Corp., the New England-based company that tracks manufacturing regulations worldwide and bundles these findings into product stewardship compliance software.*

“This is a key commitment made today by Dell, Sony and Sprint,” Nowak said. “Evolving end-of-life policies such as these force designers, quality assurance personnel and manufacturers to think differently about their products and their product quality.”

Michael Dell, chairman and CEO, Dell Inc. said, regarding the stewardship initiative, “Last fiscal year, we diverted more than 150 million pounds of end-of-life electronics globally from landfills, and we are well on our way to meeting our goal of recycling 1 billion pounds by 2014. We encourage everyone in our industry to commit to easier, more responsible recycling as we all work to protect our planet.”

E-waste not, want not. Under the strategy announced today, the US General Services Administration (GSA) says if products do not comply with comprehensive and robust energy efficiency or environmental performance standards, those products will be removed from the information technology purchase contracts used by federal agencies.  GSA also says it will ensure that all electronics used by the Federal government are reused or recycled properly.

Key components of today’s announced strategy include:

  1. using certified recyclers
  2. increasing safe and effective management and handling of used electronics in the US
  3. working with industry in a collaborative manner to achieve that goal.

For more information on the EPA and industry collaboration, click here.

Electronics stew:  wardship and US policy. It’s not the first time we’ve heard rumblings of this sort. Last October, Lisa Jackson visited China — including a site visit to Guiyu, home of perhaps the most famous e-waste dump but certainly not the only one.   And just a few weeks ago a new e-waste bill was proposed by US Representatives Gene Green and Mike Thompson, with a focus on the exports of used electronics. It’s called the Responsible Electronics Recycling Act. It establishes a new category of “restricted electronic waste” — that is — waste that cannot be exported from the US to developing nations.

Exemptions from the bill include:

  1. used equipment can still be exported for reuse as long as it’s been tested and is fully functional
  2. nonhazardous parts or materials are also not restricted
  3. crushed cathode ray tube (CRT) glass cullet that is cleaned and fully prepared as feedstock into CRT glass manufacturing facilities.

WEEE WEEE WEEE. In other responsible product end-of-life news: in February 2011, members of the European Parliament (MEPs) passed new WEEE guidelines for electronic waste.  Key points are as follows:

  1. manufacturers would help pay for goods disposal
  2. EU governments would implement more stringent penalties for breaching, e.g, for falsely identifying shipments as “reusable”
  3. authorities would be able to target all WEEE categories
  4. current ambition levels for collection rates would be maintained
  5. European standards would be set for collection, recycling and treatment for WEEE management.

For full details, see article on the top 5 WEEE bits.

Europe accepts a RoHS. In related RoHS news, the Council of the European Union (“the Council”) officially revised the RoHS directive earlier this summer. In the Big Picture, this critical recast attempts to harmonize the directive across the European Union.

In the smaller picture, RoHS affects hazardous substances in electrical and electronic equipment.  The chemical restrictions will now apply to all electrical and electronic equipment, as well as to cables and spare parts, and to medical devices, medical equipment, control and monitoring equipment – which were previously exempt from RoHS compliance but are not exempt now.