Author Archives: Mike

About Mike

Mike Buetow is president of the Printed Circuit Engineering Association (pcea.net). He previously was 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 spent 21 years as vice president and editorial director of UP Media Group, for which he oversaw all editorial and production aspects. He has more than 30 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

Don’t Expect Apple to Fall for US Again

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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.

Alloy Metal Weight Fraction Calculation

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Iasad writes,
“Dear Dr. Ron,

I see that you have developed software to calculate the density of an alloy if given the weight fractions of the constituent metals. Is it possible to find the weight fractions of the metals in an alloy given the alloy’s density? Thank you!”
Unfortunately, finding the weight fractions of the metals in an alloy from the alloy’s density can only be accomplished with a two metal alloy. First we must use the equation:

Equation 1

Where x is the weight fraction of metal A and the rhos are the associated densities.  All that has to be done is to solve for x.  The solution is worked out below in Figure 2, the final result is:

Equation 2

As an example, let’s say you have a gold-copper alloy with a density of 18.42 g/cc.  The density of gold (metal A) is 19.32 g/cc and that of copper (metal B) is 8.92 g/cc.   Substituting these values into equation 2 gives the weight fraction of gold as 0.958.  Hence the weight fraction of copper is 1-0.958 = 0.042.

I have developed an Excel-based software tool to perform these calculations. An image of it is shown in Figure 1.  If you would like a copy of this tool send me a note.

 

Figure 1.  A screen shot of the alloy metal weight fraction calculator.

 

Figure 2. The derivation of the weight fraction formula.

Cheers,

Dr. Ron

Car Talk

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The US Department of Transportation is recommending mandatory vehicle-to-vehicle communication for all new cars and trucks through a short-range wireless technology, as part of a plan to reduce the number of road accidents.

The agency’s recommendations come after a pilot program under which some 2,800 cars, trucks, and transit vehicles (and some infrastructure) was equipped with wireless connected vehicle devices and let loose on public streets to test safety applications using dedicated short range communications (DSRC) technology. The model deployment was designed to determine the effectiveness of the technology at reducing crashes.

Using DSRC, vehicles were able to tell when another vehicle with connected vehicle technology moved into the immediate driving area. Conducted from 2012 to 2013, the one-year model deployment, held in Ann Arbor, MI, was the first test of this magnitude of connected vehicle technology in a realworld, multimodal operating environment.

The implications for electronics manufacturers are profound. Automotive already has been a major (bad pun alert #1) driver of the North America electronics industry since the 2008 (bad pun alert #2) crash. To add all these sensors and boards would be tremendous from an assembly point of view.

That said, the opportunities are equally ripe for mischief. Maintaining the security over these networks is critical — and likely impossible. Even today, the Bluetooth on my wife’s car can recognize my phone from two car lengths behind. And if you can digitally see it, you can hack it. And that doesn’t begin to touch on the added capability for government to monitor the movement of its citizens and residents.

 

Just one more thing to be excited — and nervous — about.

Self-Driving Car Laws Take the Road

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Michigan on Friday became the first state in the US to pass extensive statewide regulations related to self-driving vehicles, and one of only eight in total to ratify any laws governing the technology.

The laws are significant in that for the first time a state has attempted to define the infrastructure of the self-driving vehicle. They set requirements for how such cars can be tested on public roads. They revise a prior law that mandated a “backup” driver be available to take over the controls at any time, paving the way for a car without a steering wheel or pedals.

When the self-driving feature is engaged, the law establishes the vehicle itself as the “driver” for the purposes of obeying all traffic rules. (What’s not clear is whether such a “driver” can be suspended from the road.) And for those wondering, my read of the law is s that it still requires the self-driving car to contain at least one designated licensed “driver.”

Importantly for automakers, the law indemnifies autonomous vehicle OEMs from liability stemming from changes made to the system without manufacturer consent. But less appealing is the new state ban on non-auto-makers from using their autonomous technology on Michigan roads. In short, Apple, Google and Lyft, for example, would either have to partner with the Fords and GMs of the world, or create their own car companies. Let’s hope that doesn’t slow innovation in this key emerging area the way Ma Bell’s monopoly on telecom did throughout much of the 1900s.

 

Foxconn in the Hen House?

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At the risk of beating the drum once too often, I again call your attention to the ever-more-grandiose “plans” bandied about regarding Foxconn. The latest: A $7 billion investment into US electronics manufacturing that would lead to thousands of new jobs.

Right.

It’s quickly grown to the point where columnists are asking existing US-based EMS companies for their opinion — and plans for counter-attacking.

In fact, companies like Jabil has no reason to shift gears. Foxconn’s history is to make grand statements (or have the press make them for it) of billion-dollar investments, then do nothing. When it comes to investments, I will repeat past assertions to look at the gap between what Foxconn says and what it does.

All the countries mentioned in previous breathless anticipation — India, Vietnam, Brazil, Indonesia, the US(!) — are still waiting for the investments to materialize. My belief is that Foxconn makes these statements in order to take the wind of the bad press sails, then once the air is settled, it continues to expand where it always has — in China.

It costs perhaps $20 million to $30 million to bring a mid to large size greenfield plant online, depending on land costs, of course. Indeed, the rumored $7 billion investment in the US would be greater than the aggregate electronics assembly investment in the WORLD over the past 5+ years.

(Keep in mind Foxconn is not a semiconductor fabricator; if it were, $7 billion wouldn’t be out of the range of normal.)

Finally, understand that Foxconn founder and chairman Terry Gou has been tied to higher office in his native Taiwan, perhaps even running for president in that nation’s 2020 elections. That this is being touted in the national-party-leaning China Post suggests the Chinese government approves.

Taiwan, be it a sovereign nation or a breakaway province, is less enthralled, seeing Gou as a puppet of the mainland.

Past is prologue. I don’t expect Foxconn to grow beyond what it already has in place in the US.

RoHS: 10 Years After

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Every so often, I get to work on a project that I find utterly rewarding.

The RoHS article in this month’s issue of PCD&F/Circuits Assembly was one such project.

Titled “Was RoHS Worth It?“, it attempts to recap the chaos and angst that preceded the ban of lead in Europe (and the de facto phase outs elsewhere). It a real eye-opener how even the most hardened anti-RoHS researchers came around to seeing value from the experience. There was broad agreement, even among those who felt the fears over lead were overblown, that much was learned from the process, not the least of which is that no matter how much we have invested in one technology, there are likely others that are better.

As Dr. Iver Anderson told me, “You could say RoHS banning electronics really is a glimpse of the future. Because it won’t be the last time.”

To me, that quote distills in two sentences what I hope to achieve from embarking on this retrospective: a record that the researchers and engineers of the future can use as a benchmark for future broad-based transitions.

I am grateful to Karl Seelig, Jim McElroy, Paul Vianco, Dr. Carol Handwerker, Tetsuro Nishimura, Kay Nimmo, Iver Anderson, Dave Hillman and Dr. Richard Coyle for their invaluable help.

Happy reading!

 

Patents, Home and Abroad

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The annual review of the world’s patent filings always tells an interesting story.

Some 2.9 million applications were filed in 2015, up 7.8% year-over-year. China led with 1.01 million filings, followed by the US (526,000) and Japan (454,000), reports the World Intellectual Property Organization.

But … (when it comes to China there’s always a big but) … only 4% of China’s applications were outside their own borders, while 45% of US applications were filed abroad.

Computer technology (7.9% of the total) saw the highest percentage of published patent applications worldwide, followed by electrical machinery (7.3%) and digital communication (4.9%), WIPO reports.

WIPO doesn’t indicate why Chinese inventors are by and large choosing only to protect their claims in-country. Here are some possible reasons:

1. The US requires that inventors obtain a “foreign filing license” before filing foreign patent applications on inventions that occur in the US.  “This allows the government to assess, for example, whether the technology could threaten US national security,” says Dennis Crouch, a professor at the University of Missouri School of Law and co-director of the Center for Intellectual Property and Entrepreneurship.

2. China, on the other hand, requires inventors to first file domestically, where it will then determine whether the invention needs to remain secret for security or other purposes. Only then is the inventor allowed to submit an application abroad.

In summary, domestic firewalls in the world’s two largest markets could well be hampering outsiders.

Apple to US a Supply Chain Hurdle

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It was, to paraphrase Homer, the headline that launched a thousand blogs: “Apple Could Make iPhones in US in Future: Sources.”

Cue all the breathless op-eds.

It won’t happen.

Not because Apple doesn’t care about the US. And not because Tim Cook, struggling as mightily as any billionaire could to fill the shoes of Steve Jobs, has something against American workers.

But it’s simply not that simple.

In 2013, to great acclaim, Google opened a handset plant in Dallas, where it hoped to employ nearly 4,000 workers, proving once and for all America could compete in high-volume cellphone manufacturing.

Not two years later, the search giant shuttered the site.

Almost all the components used in the various Apple iPhones are made in Japan, Korea, Taiwan or China. For the geographically challenged, that’s an ocean way from the US. Manufacturing is a supply-chain business; no company makes everything themselves. And most of Apple’s suppliers are foreign-owned. Apple is not exactly known for its generosity. Those suppliers won’t be willing to spend the billions it would take to relocate just to keep what in some cases is not much better than break-even business.

Even the unnamed source for the initial Nikkei Asian Review report acknowledges that Foxconn would be hit by a sharp rise — perhaps 50% — in production costs. “Making iPhones in the US means the cost will more than double,” the source said.

The notion, especially, that Taiwanese stalwarts Foxconn and Pegatron would suddenly build giant factories in the US is far-fetched as well. Remember that $40 million investment Foxconn said it would make a couple years ago? Pennsylvania is still waiting.

Indeed, they are likely salivating at the possibility of new US trade barriers, even for a key customer like Apple. Why? Because Apple’s gross profit margin is breaching 40%, while those of their ODM suppliers are around 10% or less. With the design, manufacturing and supply chain knowledge so firmly in the hands of the ODMs, should events conspire to make Apple slide, they are well-positioned to pick up the slack.

 

M&A Activity is About Connected Cars

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Regardless of how fast autonomous vehicles become mainstream, the connected-car is on the verge of reality.

The Siemens-Mentor deal announced yesterday is a prime example of one conglomerate’s desire to capitalize on the prospective market for connected technologies, which is projected to reach $100 billion or more in the coming decade. Another, less-publicized M&A also underscored this emerging trend.

Samsung announced it will buy Harman International, a deal that should accelerate the Korean OEM’s drive into the connected technologies market.

Harman is a major supplier of automotive electronics: its audio, infotainment, and connected safety and security systems are already in 30 million vehicles worldwide. In exchange for its $8 billion investment in Harman, Samsung will now have close ties to all the largest automakers around the globe.

From the USA Today:

The primary motivator for Samsung’s purchase of Harman is to tap into its automotive business,” said Jack Wetherill, senior market analyst at Futuresource Consulting. “This is absolutely about the connected car. Harman are major players in this business and Samsung are not. They know they need to get into it to leverage their IoT (Internet of Things), their smart home and smartphone businesses to effectively spread, develop and maximize their revenues and potential.”

What this all says is that despite the emergence of ride-share services like Uber and Lyft and Didi Chuxing, coupled with millennial angst about car ownership, no one sees the auto market shrinking any time soon.

The implication of that, then, is that there will be an equally — or perhaps even larger — opportunity for those that invest in smart infrastructure. After all, despite all the bells, whistles and Internet access, the role of the car is still to get the passenger from point A to point B as quickly and safely as possible.

Mentor’s Final Sale

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In the end, Paul Singer did what Carl Icahn couldn’t: Got Mentor sold.

Singer, the hedge fund manager known for taking large positions in companies and pushing for tough changes, breakups or sales, started accumulating shares of the EDA CAD company earlier this year. In September, it was revealed that his company Elliott Management, had bought up 8.1% of Mentor’s stock. Elliott immediately started lobbying for changes.

For Mentor, it could have seemed like a recurring bad dream. The company had been through this before, starting six years ago, when Carl Icahn, himself a famed corporate raider, began acquiring shares and issuing accusations of waste throughout the organization.

Icahn’s relationship with Mentor was public and acrimonious. Soon others joined the fray. Everything went under the microscope, from spending on marketing to the personal wealth of the directors. CEO Wally Rhines came under attack for pocketing $65 million from Mentor while the company generated only $113 million in free cash between 2001 and 2011. Icahn even offered to buy the company outright for $1.9 billion, a figure Mentor’s board dismissed as too low.

The board, however, couldn’t outright avoid Icahn and the others, who at their peak owned more than 20% of the company. Instead, they executed a “poison pill” amendment to its bylaws, making a hostile takeover more expensive and risky.

Icahn managed to land three directors on Mentor’s board but never affected the breakup or sale he had hoped for. Mentor bought back half his shares in February for $146 million, and he sold the last of his holdings in May.

Icahn certainly made a pile of money off Mentor. It took Singer, however, to fundamentally change the trajectory of the company.

Upon Elliott’s announcement, Mentor charted a different course. Instead of waging another attempt to fend off the barbarian at the gate, this time it signed on with Bank of America as an advisor to a possible sale. The deal with Siemens came quickly thereafter.

Singer’s stance was Mentor was undervalued by 20%. The price Siemens is paying — $4.5 billion — suggests even he was low.

Siemens was never a stretch as a suitor. As far back as 2011, we suggested the German conglomerate was one of a few companies that made sense to possibly acquire Mentor.

For some involved, the deal completes a circle. Mentor will become part of Siemens PLM, whose president Tony Hemmelgarn is a former Integraph executive. In fact, he was director of sales and marketing when the company spun off its Electronics Division into a wholly owned subsidiary known as VeriBest. Mentor then acquired VeriBest for $19 million in 1999.

It does spell the end to Mentor after 35 years as a standalone company. Founded by a trio of Tektronix engineers — Tom Bruggere, Gerry Langeler and Dave Moffenbeier — in 1981, Mentor added the PCB division through a merger with CADI in 1983. (Just after, Mentor hired the legendary John Cooper, who with partner David Chyan eventually developed the first shape-based router.)

In all likelihood this also means an end to Wally Rhines’ 23-year tenure as head of Mentor. He will be remembered as a steady leader during a period of great upheaval and M&A in EDA. On his watch, Mentor’s revenues grew from $340 million to nearly $1.2 billion. That’s a pretty darn good run.

Less clear is how the rest of the industry will react. Siemens gives Mentor exceptionally deep pockets, a buffer against meddling shareholders, and an extensive market for technology both as a customer and to partner with. The focus on “concept to system” just got a big boost.

By comparison, on the PCB side, the door has been slammed shut on one of the exit strategies for Cadence and Altium. Dassault has been rumored to be kicking the tires on Altium; this could trigger a move. Will PTC, which shares a Boston area neighborhood with Cadence, be compelled to act as well in order not to get shut out of ECAD? As one longtime industry observer noted to me recently, “It’s about the form factor.” OEMs want to design product in its entirety, not in silos of electrical, electronics, mechanical and wire harness. Given that, it’s a safe bet the M&A in ECAD won’t stop with this deal.