New Semi Group Needs to Talk Bigger Goals than Just Subsidies

“You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things that you think you could not do before.” ? Rahm Emanuel


In the wake of the latest components inventory crisis, the lobbyists are out in full-force trolling for subsidies for the semiconductor industry.

And if the usual suspects weren’t enough, many of the blue chip (no pun intended) companies that make up the Semiconductor Industry Association and SEMI this week launched yet another industry organization, the Semiconductors in America Coalition. the group supports the allocation of $50 billion by the US government (read: taxpayers) to fund advanced semiconductor manufacturing. The announcement came at almost the same time – coincidence? – IBM reported successful development of 2nm process using a 300mm wafer.

That prompted a longtime friend and industry observer to suggest, “rather than spending money directly, the US and state governments offer the same deal to the supply chain as a whole as do the South Korean, Chinese, and Taiwanese governments. A holistic response is needed. Maybe a carrot to keep 2nm tech onshore.

“We need to bring a number of critical technologies back; chips, packaging, HDI, transposers and even certain components,” he went on.

“Apple has been using black solder mask for decades now to prevent piracy and it has worked. Their keiritsu approach works. Keeping key technologies within the kimono, as the Japanese say, and bringing those key industrial components back, would help to reaffirm North American industrial security and protect our supply chain.”

I can see where he’s coming from, but Apple really doesn’t have the scale of the other communications and computing OEMs; it’s share of the worldwide smartphone market is about 15%, and it has only 8% of the PC market. It’s probably not the model to emulate in that regard. More interesting is its recent decision to go full bore with its own M1 processor, which is made by TMSC.

I know Samsung and TMSC are also working on (close to?) 2nm. I don’t think IBM alone has the scale anymore to be a difference-maker, which is where the other fabs need to step up. They all smell an opportunity, and it’s hard to blame them for trying to get their hands on “free” money.

What I haven’t seen is an overarching policy proposed by the various trade groups/lobbyists promoting onshore wafer production. It seems more piecemeal to me, with new associations stacked atop legacy ones, all promoting the same message (subsidies) but with no promise of tangible returns.

I’m not against government subsidies for critical tech – and semi is absolutely one of those – but it seems to me they should start with a goal and then fill in the rest (processes, funding, etc.).

Sans a clear objective, the game plan will not only be expensive and a hard sell, but doomed to break down.

Passive Demand Anything But Passive

The component distributor TTI has released its first quarter market report and the outlook is ominous: 28 passive electronic component types have increasing lead times, while 24 saw price increases. Tantalum molded chip cap lead times are now up to 32 weeks.

Lead times for most connectors remain stable, although prices are climbing. The exception is TE, whose lead times are climbing.

Memory supplies are also generally getting tighter.

With some component manufacturers now requesting 18 month forecasts, the risk for double-bookings is on the rise. Beware! Someone always gets stuck holding the bag of chips.

Covid-19 is Creating a Perfect Storm for Manufacturing

By Rafael Gomez, Director Product Strategy, Bright Machines

The pandemic’s economic impact started as a supply chain shutdown in Wuhan, China, but rapidly became a three-tier global disruption. As the virus spread, worldwide supply chain was interrupted, followed by an unprecedented shift in product demand and most recently by mandated factory shutdowns imposed on non-essential product manufacturing lines.

Let’s discuss the impact of these disruptions and explore how we can mitigate these forces that threaten to destabilize manufacturing.

Disruption #1 – Manufacturing and the supply chain

The first disruption to manufacturing and the associated supply chain was in China. This was due to the outbreak of novel coronavirus (Covid-19) forced workers in that county to stay home rather than return to work after the Chinese New Year holidays. The resulting impact was that a significant amount of the world’s manufacturing capacity was essentially shut down for an extended period, more than two weeks in most of China, and much longer in Wuhan.

This manufacturing and supply chain shutdown turned out to be just the start.  As the virus spread, manufacturing shutdowns rapidly spread throughout Europe and the US. We are now faced with the challenge to scale additional capacity or rapidly move production from one facility to another, neither of which are feasible in the manufacturing industry.

Disruption #2 –Demand volatility

Just as China’s factories started to come back online it became abundantly clear that the challenges were global and that certain products like PPE (Personal Protective Equipment) and medical devices were in unprecedented demand in terms of volumes and urgency. Meanwhile, workers, who are themselves consumers, were staying home and not shopping, sending economic shockwaves around the world, resulting in a dramatic downturn in market demand for non-essential or discretionary products. Add government and administrative intervention, including the loosening of FDA regulations and the use of the Defense Production Act in the USA, and it’s easy to see how the manufacturing industry was suddenly forced to deal with the unprecedented reactionary shift in market demand.

Disruption #3 – Workplace challenges

The third disruption came in the form of government directives to shelter in place and enforcement of workplace social distancing (including new OSHA guidelines).  Furthermore, non-essential factories have been shut down for an extended period. Once factories reopen, manufacturing plants will need to adhere to new and complex regulations. For example, when factories re-opened in China, they were mandated toto demonstrate ten-day supply of face masks for each worker. For example, a factory of 500 operators would need 10,000 masks to be authorized to continue operations. For many factories, an ongoing supply of PPEs in short supply and can be challenging and costly to obtain.

Once manufacturing companies receive authorization to restart operation, workplace social distancing on the factory floor will impact every discrete manufacturing function Traditionally, manual assembly lines are designed with minimum operator to operator spacing to facilitate the passing of product between stations and to minimize required floor space. With the new OSHA directives, these manual lines will need to be redesigned to increase operator spacing.  factories have met these challenges in creative style, like running extra shifts to redeploy staff and keep them distanced.

The data-haves and data-have-nots

Manufacturers that have embraced digital transformation, and the associated software-controlled automation, are best equipped to succeed in light of these disruptions. Real-time data drives visibility, which allows these “digital haves” to see the impacts of disruption sooner. Meanwhile, smart automation provides tools to adapt and adjust course quickly. Not only are these companies able to adapt production to meet increased demand or comply with new regulations, they are able to rise to the challenge of manufacturing the machines, devices, and consumables needed to help fight the virus, perhaps offsetting the loss of orders for ‘non-essential’ products.

The Future is agile and resilient

This perfect storm of disruption has exposed limitations of traditional manufacturing ecosystems and their associated supply chains. It has become clear that manufacturers need to move away from traditional analogue operational models, where production takes significant and costly time to set up on a line and requires constant tweaking or adjustment by experts with tribal knowledge of manufacturing processes.

To minimize the impact of economic disruption, manufacturers need to operate in a new paradigm.  This new version of manufacturing is fully data-enabled and software-driven to deliver an automated solution that provides the resilience to cope with disruption and the agility to react and adapt when that inevitable disruption occurs.

Considering previous viral outbreaks and natural disasters, Covid-19 isn’t the first global event to disrupt manufacturing and the supply chain, and it certainly won’t be the last. One key learning from this unprecedented event is that companies that have embraced digital transformation of manufacturing are the most robustly equipped to survive this economic disruption. These forward-thinking manufacturers will surely reap the prosperous benefits of their proactive digital transformation.

‘Huawei’ E.O. Portends Total Supply Chain Chaos

The headlines have been filled with reports on the pending US ban on domestic companies from conducting business with Huawei.

In submitting the order, President Trump cited cyber-warfare, espionage and threats to US national security as rationale for the ban.

Less noted: The impact on bare board and assemblies procured from China. After all, the executive order “prohibits transactions that involve information and communications technology or services designed, developed, manufactured, or supplied, by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary” as determined by the Commerce Secretary.

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.

Don’t Sweat, Taiwan: Apple is Still Yours

Forbes today offers an interesting take on Apple, specifically, that Taiwan would feel the crunch of a major shift in the supply chain back to the US.

If Apple scales back contracts in Asia, at least a half-dozen core suppliers and assemblers in tech hardware hub Taiwan would face a loss in orders, analysts forecast. But those corporate heavyweights might be able to retain Apple’s business by moving their China-based production back home to Taiwan, if not to the U.S., and using automation for lower costs.

Let’s consider the various angles to this.

First, Forbes is right: A shift by Apple to somewhere outside China (it doesn’t have to be the US) would absolutely affect Taiwan’s major electronics ODMs. That precise outcome occurred when Cisco, AT&T, Motorola, Alcatel, Tellabs, Lucent and many, many others moved their manufacturing to suppliers outside North America. How much laminate is now manufacturing in the US? How much solder mask? Process equipment? Components? How many merchant fabricators and assemblers still do volume production in North America?

But let’s be straight here: Just who will be affected? Key Apple ODMs such as Pegatron, Compal, Wistron, Zhen Ding, and of course Foxconn would be directly impacted. They would have to spend tens of millions to rebuild elsewhere. But … they can afford it. Can anyone else?

Keep in mind, Taiwan doesn’t operate factories in China as a favor to the Chinese. It does so because it has to. Taiwan is a small nation with a population of less than that of New York City and roughly 16 to 17 million people of working age. The unemployment rate is 3.7%. It has no available domestic workers to hire into engineering and manufacturing. China has ample population resources, not to mention the stark differential in labor rates. (Taiwan’s national minimum wage is more than twice that of Shanghai’s, which is the highest in mainland China, and could be five times higher than that of China’s less developed areas. The fully burdened rates are equally disparate.) Taiwan has every incentive, financial or otherwise, to introduce more automation. If it could, it would. If Apple were to bail, China stands to lose much more than Taiwan.

Second, if not Taiwan, where would Apple go? The US doesn’t have the spare workers either. The unemployment rate is 3.9% and has been under the benchmark 6% rate for more than four years. Immigration is at a post-WW II low, further straining the labor pool. Wages are rising as businesses compete for a smaller available workforce.

Third, how long would it take? Building a supply chain in a new region takes time. Granted, the US has the processes in place to bring industrial parks online, but space in key areas is at a premium and local, state and federal regulations often impede quick progress. Many other nations have various issues (graft, corruption, lack of educated or trained workforce, lack of infrastructure, little or no IP controls, etc.) that also prevent a mass exodus. Businesses, especially public ones, cannot afford disruptions in getting products to market. They tend to be risk-averse, for good-reason.

Fourth, not all manufacturing plants are the same, a fact Forbes downplays.

Some Taiwan tech firms, most notably Foxconn, already operate factories in the US and could feasibly move final assembly of Apple’s gear to the US after some initial work at their cheaper China bases, says Tracy Tsai, research vice president with tech market analysis firm Gartner in Taipei.

If only it were that easy. An LCD panel plant is not the same as an SMT placement plant. It would be nearly as expensive to convert a plant as to greenfield one. And final assembly tends to be more labor intensive that upstream processes, which means higher costs. Putting that work in the higher (highest?) labor rate nation —  the average manufacturing labor rate in the US is now close to $39/hr. — makes little sense.

All in all, Forbes is waxing hypothetical, but it’s not a realistic notion.

Tariffs are Taxing the Supply Chain

The breaking tariff situation in the electronics industry is equal parts fascinating and chilling because of its lack of near-term precedence and unpredictability. We’ve spoken with several EMS companies (read the article here) to gauge the extent of the disarray and get a sense of how they are (attempting to) resolve the issue.

Our reporting is ongoing, so be sure to check back occasionally for updates.



Top 5 Ways to Mitigate Component Availability Problems

Most of the electronics design world is by now aware that we’re in a very serious period of components shortages. Hardest hit seem to be ceramic capacitors, but other passives as well as a variety of connectors and silicon parts are also caught up in the shortage storm. Allocation and shortages hit every few years, but this one seems to be the worst in recent memory. It could be a problem until 2020, and the supply chain and world of components manufacturers will likely be a different animal coming out of it.

So, you might ask, isn’t that just a problem for high volume producers? No, I would answer. It affects anyone regardless of volume. The exact way that it hits you and what you can do about it may differ, but it has or soon will hit all of us.

Here’s five things you can do to minimize the effects. I’m going to go backwards and starting with the most important thing for people who need low volumes manufactured:

1. Check the availability of all of your parts immediately before sending us your bill of materials.

The. very. last. thing. before sending us your BoM. It’s not uncommon for a part to be in stock one day and out the next. We’ve even seen cases where the part’s in stock in the morning and out by the afternoon. If you’re having us quote and order your parts, verify they are in stock as the last thing you do before sending your files to us.

Almost every BoM we see these days has one or more parts that are out of stock. We send you an email about the parts being out of stock. We can’t do anything else until we hear back from you. We can’t build without parts and we don’t know your design like you do, so we can’t guess at substitutions. A last-minute check can save days of delay.

2. Put one or two alternate part numbers in your BoM, especially for passives.

As I said above, we don’t know your project so we can’t pick a sub for you. Give us some alternates. Put them on the same line as the original part, to the right. And be sure to tell us in the special instructions that you’ve put alternates in the BoM.









3. Consider your parts values carefully. You may be able to pick something with better availability.

The 0.01?F capacitor is the hardest hit component. It’s the most commonly used bypass capacitor. Some designs need exactly that value, but many don’t. It may be easier to find a 0.022?F, a 0.0047?F, or something else close enough. If that’s the case, choose a close enough value that has better supply, or put one in as an alternate.

4. You might need a slight redesign to use a smaller package.

Since smaller packages can be used in more applications, many suppliers will be allocating more of their foundry capacity to smaller form factors like 0402 and 0201 sizes. Some component manufacturers have said they’ll be permanently discontinuing anything bigger than 0402 parts except when absolutely necessary.

Stick with 0402 size passives. It may be easier to find the parts you need in that package, and those size parts will be the first ones to come back in stock.

5. If we send you a message about a part we can’t find, respond as quickly as possible.

We do our best to avoid any delays in this process, but we can only do so much. Help us out by getting back to us as soon as possible, and don’t be afraid to give us more than one part number to try.

This can be a pretty annoying problem and it can cause delays and other problems. The good news is we’re having this problem because the design world is booming and technology is advancing. It will get better, and following these five tips can help prevent delays. Don’t forget to check your parts for availability right before sending your BoM in to us. I mean it!

Duane Benson
Parts, parts everywhere, but not an 0805 to solder

Rethinking the Supply Line

The PCB fabrication industry is older than most of us still working. It is overdue for modernization. We have not seen transformational manufacturing changes in the PCB bare board industry during the past 15 years.

What we have seen is the installed capacity moved to China. It has been reported that 60% of global board fabrication now comes from mainland China or Taiwan. This move created a forced shift in how boards are purchased, and consequently created new demands in communication and logistics. Specifically, language, time zone, and cultural considerations. Bigger companies with China-based feet on the ground could adapt easily; the rest of us had to learn new skills.

I am suggesting that the rest of us modernize and rethink our supply line strategy.

Some may remember the evolution of the electronics component industry. First, component manufacturers sold directly to OEMs. Gradually, customers and component manufacturers found that a better path was through a local distributor. Arrow, Avnet, Future, DigiKey, and many others were born out of this efficiency. Today, it is an exception to buy directly from a component manufacturer.

PCB fabrication is difficult for distributors because every board is custom. Repeat: every board is custom. Custom equals high potential for error, which equals close technical review required.

So, buyers must go to China directly and slog through the variety of China sources. With this come the multiple challenges of accountability, communication, logistics and culture. The most dangerous of the challenges is having picked a supplier that occasionally (or often) sends subpar boards and provides no recourse or no response to your complaint. Do you really want to commit such a critical part of your BoM to the lowest China bidder?

The modernization of the PCB industry is not in processing, but in supply chain. A new category of value-added distributor is evolving in the same way the component distributor evolved … to make things easier. We call it “Managed Manufacturing Services.”

Think of it as a value-added distributor of printed circuit boards. This concept can greatly improve the supply chain for both customer and China manufacturer, but only if they really add value.

What are the important values, and how does this approach add value?

Technical support. The value-added distributor must be your expert design reviewer, capable of counseling you and quickly fixing the errors.

Only technically trained PCB teams really understand the manufacturability challenges of bare boards. With the technology of new IC packages pushing toward smaller geometries, new thinking is required about designing for manufacturability. So, your value added distributor has to be technically trained to provide this service.

Communication. The value-added distributor must be capable of clearly and cleanly communicating with a factory in a different country.

We have been working with offshore factories for a long time. We learned through hard knocks that developing a strong relationship with your counterpart in Asia is critical. I call it “Pitcher-Catcher.” Whether a fastball or a curveball, the two communicate in one cohesive motion. This takes time to develop and not every factory gets it.

Time zones can work to your advantage. We pitch everything to China by 5 pm Pacific and have answers at 6 am the next day. Your distributor must know the factory requirements well enough that only a few questions (EQs) come back, lessening the need for middle of the night conference calls.

Accountability. Your value-added distributor must have carefully vetted and audited the factories they use. They must be US corporations with financial accountability to their customers.

Slogging through a variety of factory options is not a good idea. Jumping from one to the next based on price and email pressure is also not a good idea. It wastes time and invites disastrous quality issues. Customers with little or no knowledge of what makes a solid factory are at particular risk. Yet most customers fall into this category.

If you have someone on staff with experience in this area, you can send them to China to visit multiple factories, but unless this person has in-depth knowledge of what makes the difference between okay and fantastic at the granular level, it is waste of $10,000. It takes deeply experienced people to see the difference. It takes board manufacturing experience.

From the China manufacturer’s side, it is just like the component manufacturers of old. It is much more efficient to deal with a small handful of companies who service the US market than it is to staff and service everyone. The culturally smart ones are beginning to see this and actually do view us as distributors for them. It is a proven supply-chain solution.

Following the model of the component distributors, we can modernize this PCB industry. We can improve efficiency, quickly adopt new technologies, and capture lower costs all by modernizing the supply chain. Welcome the value-added PCB distributor, or as we call it Managed Manufacturing Services.

Thomas Smiley is president, Precision PCBs;

Don’t Expect Apple to Fall for US Again

Analysis of the impact of Apple moving its production — or at least some of it — to the US will continue over the next several months but with the imminent change in US administration it could be peaking now.

Back and forth continues among various media sites debating whether Apple can or can’t, and should or shouldn’t, relocate some of its assembly.

Forbes today points to multiple studies, one by Syracuse and another by MIT (from June) that estimate assembly costs for a high-end domestically produced iPhone would rise 5% ($30 to $40). Other estimates peg it at closer to 13% ($100).

To be sure, there will be more of these types of discussions taking place. But much of the chatter disregards that Apple can’t do this alone. We have argued previously that Apple’s mastery of the supply chain has as much to do with its success as the occasionally startling hipness of its designs. The cool factor is subsidizing; keep in mind Apple has only 12% share of the cellphone market, and the tablet market — in which it once commanded a 90% stake — is now absolutely flooded with competitors and shrinking by the year. Apple’s net income has been falling with it, and the Watch Series 2, its latest entrant in the smartwatch sector, is not only losing share, the entire category is diving.

Capacity would not only be a huge issue, but the costs of scaling up are not included in any of the financial analyses I’ve read. The very real costs of $1 million or more per high-volume line would be to be absorbed — and passed on. (Zhengzhou is said to be the largest Foxconn/Apple factory in the world, with 94 lines currently running.) That’s not including the costs of finding and/or greenfielding factories, hiring, training, and so on. By the time all that is done, a new administration could be in place.

And then there’s the issue of taxes, which most reports fail to assess or even discuss. A New York Times article today, however, quotes a former chief of staff of the congressional Joint Committee on Taxation as saying: “US multinationals are the world leaders in tax avoidance strategies. In doing so, they create stateless income — income that has become unmoored from the countries to which it has an economic connection.”

Apple has stashed scores of billions of dollars offshore to avert a ginormous tax bill. The US corporate tax rate is third highest in the world on a top marginal basis, according to the Tax Foundation. This is a bit of a red herring — the lowest listed non-island nations are Uzbekistan and Turkmenistan, and no one is thinking of rushing there. But Ireland is among the lowest 20, a fact Apple has used to its advantage (although that could bite them, if the EU has its way).

All of this adds up to a very unlikely scenario that Apple will be motivated to relocate production. I could see a bit of highly publicized migration to what’s essentially a US showroom as a means to give politicians a “win” and displace some heat, but it would be trivial relative to the overall volume.

Update: Here’s yet another opinion, published on Dec. 29. And other, from the South China Post, asking whether China’s manufacturing is “hollowing out.”

Dec. 30 update: Foxconn’s CEO says will invest $8.8 billion in a new flat-panel display plant in China.

A ‘Worthington’ Idea

EMS firm Worthington Assembly last week announced a deal to market its EMS services via CircuitHub.

WAI is a small EMS company located in Western Massachusetts. Like many in the sub-$20 million space, WAI’s owners double as its salesmen, and the firm relies heavily on word of mouth (and engineers changing jobs) for prospecting.

CircuitHub developed a universal parts library and is offering that, along with BoM, bare board and assembly quoting. PCD&F did a piece on the company last year.

Chris Denney, WAI’s CTO (and a sometime CIRCUITS ASSEMBLY columnist) explains the partnership here.

Clearly, more opportunities to order boards from a variety of suppliers via a single website are popping up, with the site typically offering free software in order to gain visitors (FabStream, for example, offers use of a PCB CAD tool capable of up to 12 layer boards, and SnapEDA offers simulation).

I would not anticipate larger EMS firms would go this route. But for smaller ones, whose cost of sales would be proportionally high relative to its income if it employed direct outside sales, using app-based vendors could be a creative and low-cost way to find new customers.