Monthly Archives: September 2016

Foxconn India: Still a Pipe Dream

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It’s been a year (more actually) since India announced — to great fanfare — a memorandum of understanding with Foxconn to invest $5 billion over the next five years in the nation. For India, it seemed like a marriage made in heaven: the world’s largest electronics manufacturer would be an ideal partner for its goal to develop a local end-to-end supply chain that could not only serve its burgeoning domestic population but also provide a steady stream of exports to the rest of the world.

Yet as the Times of India points out today, the bride is still waiting at the altar.

As we said at the time, Indian officials shouldn’t hold their breath waiting for the relationship to be consummated. Foxconn is really good at promising huge investments, only to fall short in the end.

Actually, we’ve been saying this for years. Foxconn is Chinese to the core. It may on occasion have dalliances with other countries, but it always returns to its mate. Suitors, take note.

 

What’s the Deal with Delly?

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Gayla Delly left Benchmark with no notice last week. Why?

Changes at the top of Tier 1 and 2 EMS firms don’t happen often. Before Friday, in fact, Benchmark had had just two chief executives in its 30-year history.

Cary Wu founded the company as part of a buyout from medical device manufacturer Intermedics in 1986. He remained in charge until December 2011, when he promoted Delly, the company’s longtime head of finance, to the top spot.

Highly dependent for years on the high-end computing sector, especially IBM, Benchmark had been trying to balance its portfolio via acquisitions. With its acquisitions of Suntron and the EMS operations of CTS, both in 2013, the company attempted to broaden its reach into the high-reliability industrial, medical and aerospace/defense markets. It then snapped up industrial communications OEM Secure Technology in 2015.

Many bigger EMS acquisitions are slow to be accretive. The large amount of fixed assets and (typically) lower capacities at the acquired company mean layoffs and restructuring costs will follow. Still, investors are impatient and the deals were met with criticism in some quarters.

Much like Sparton and its now-departed CEO Cary Wood, Benchmark faced strong opposition from a loud activist investor who accused the EMS company of poor fiscal management. (Interestingly, unlike many of its similar-sized competitors, Benchmark has typically been patient with its M&A strategy, choosing to keep its debt levels low.)

The intensity of that criticism, which was public in the spring, had quieted down during the summer after the investor won two board seats. On its quarterly conference call in late July, Delly went to far as to deny any strategic changes in the direction of the company following the seating of the new directors. This makes the timing of Delly’s departure all the more curious.

Last Friday, the announcement came that Delly was being replaced as president and chief executive with veteran electronics executive Paul Tufano, effective immediately. Tufano is a Benchmark board member who has spent more than three decades in the technology and telecommunications industries, most recently as chief financial officer of Alcatel-Lucent. He also has a background in EMS, having been executive vice president and CFO of Solectron. It’s possible the move implies the company will refocus its sights on computing and telecom. We shall see.

Neither Delly nor the company has yet commented on the change.

 

Changing of the EDA Guards

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Turnover among the heads at the major suppliers of electronics design-related software is rare indeed. Since 2010, the top spot of a leading PCB software company has changed hands only once.

The dean of PCB EDA, Makoto Kaneko, founded Zuken in 1976. Wally Rhines has run Mentor Graphics since 1993. His counterpart at Cadence, Lip Bu Tan, has been in place since 2009.

Altium has had three chiefs in its existence, the most recent being Aram Mirkazemi, who was installed in 2014. But for a shareholder revolt in 2012, however, Nick Martin, who founded the company in 1985, might still be in charge.

That’s why it’s was so unusual this week when, on the same day this week, Ansys and NI each named the successors to their respective thrones.

Ansys appointed Dr. Ajei S. Gopal CEO-in-waiting, succeeding longtime head Jim Cashman. Gopal’s been a familiar face around the company, however, having joined its board in 2011.

Cashman joined Ansys as president in 1999, and was named CEO a year later. On his watch, Ansys’s revenues have grown from $50 million to almost $1 billion.

In NI’s case, it’s in some ways an even bigger transition. As a researcher at the University of Texas, James Truchard cofounded National Instruments in his garage in 1976. Come Jan 1., when Alex Davern takes the reins, it will be as chief executive and president of a $1.2 billion firm employing more than 2,000 workers worldwide.  If Davern has an advantage, he’s held a variety of positions in finance at NI dating to 1997, and he’s been Cashman’s right-hand as COO and CFO since 2010.

What’s clear is that the software industry, while dependent on innovation, also prides itself on stability. Since the market is characterized by a relatively small number of major players, the ability to maintain relationships with key customers may have something to do with that. That the leadership at most of the aforementioned companies has been relatively controversy-free doesn’t hurt, either.

From the looks of it, the heir apparents promise more of the same. Given the respective performance of the CEOs they are following, that’s not a bad thing.

 

 

Reshoring

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I am often asked by those in the printed circuit and electronic packaging industries about reshoring. My response generally is that reshoring is a myth. It seems that whenever I try to contact someone by email I get an automated response stating, “I am currently in China and will return to my office on ….” Many of the facilities and much of the equipment that would be needed to reshore have been auctioned off or sent to the scrap heap. Those that operated them have moved on to other jobs. Some have gone to work for Chinese companies.  Further, reshoring intimates bringing back something. However, technology does not stand still. Advances in fabrication processes and equipment require major expenditures to produce today’s, and tomorrow’s products.

Major firms such as Apple have announced intentions to establish independent research facilities in China. Production often follows within the region of successful R&D.

What seems to be occurring is not reshoring but new activity to establish new companies, manufacturing operations and produce product — albeit on a very modest level. However, with a sluggish economy, high corporate taxes, and overly burdensome government regulations there are few venture capital sources available for such efforts – especially in the uncertainty promulgated by the current election year. In fact, affordable financing to modernize and upgrade America’s smaller PCB enterprises is largely unavailable.

We must also consider the question posed by Andrew Strong an associate director of Cambridge Consultants when we think about reconstituting older manufacturing plants for potential re-shoring: “Repair, Replace Or Re-Invent?” I would suggest, assuming that the products to be made have sufficient competitive market longevity, replace with improvements based on recent developments, automation, design changes, new materials, and lean manufacturing principles — assuming sufficient financing is available.

Reshoring continues to be a very “hot topic.” A member of our 2,500+ Linked-In network members wrote the following thought-provoking and incendiary comment: “Reshoring for electronics manufacturing doesn’t make sense due to high levels of process automation, extensive and effective supply chain already established, end product unit value to weight ratio enabling low unit shipping cost and relatively smooth global logistics.

The issues with establishing new manufacturing for other products in the USA are highest corporate tax rates, increasingly difficult regulatory positions discouraging small businesses and startups, government interference in attempting to “pick winners,” and uncertainty about the sustainability and competitiveness of our free market capitalism as we continue to follow the European socialists countries into oblivion.”

Another colleague of the past half-century sent an interesting response to the “silent  complaint” story linking it to reshoring. We posted it on our “Comments & Discussion” page.

What do YOU think? Do you wish to engage in this vital conversation? Should we redefine the challenge? Do you have a workable solution? Let us know!