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

Platinum Deals Cost a Lot of Gold

The silence, as they say, surrounding the pending Platinum Specialty Products acquisitions for OMG and now Alent, has been deafening.

Could it be because it’s summer, and people aren’t paying as close attention?

Could it be because that’s how the respective companies prefer it?

We receive announcements several times a week from various folks within Alent, but they haven’t said boo about the buyout. And the folks in the industry I’ve queried about it haven’t been quick to respond either, both on the Alpha and the Enthone sides.

Platinum is aggressively buying up companies in the solder and electroplating/finishing materials space, first having bid for OMG’s PCB chemicals unit (the former Electrochemicals) and now agreeing to terms for Alent, the former Cookson metals divisions which include Enthone and Alpha.

The aggregate price tag for the various units: $2.67 billion, including assumed debt.

That will add to the debt Platinum assumed when it acquired MacDermid in 2013 for $1.8 billion. The weight of these transactions is making folks inside and outside the industry a bit cautious, as this recent statement from Moody’s indicated.

Platinum paid nearly $40 million in interest in the first quarter alone, and its operating profit for the period was just $2.2 million. The additional acquisitions will further stress a balance sheet that carried $1.4 billion in debt as of Dec. 31.

Dan Leever, the man at the helm of Platinum following its buyout of MacDermid, knows the PCB industry inside and out, but it’s unclear to me how much further they can go before running into a Viasystems-like situation.

In Search of Pluto

This isn’t directly related to printed circuits but oh-so-cool nonetheless.

NASA this week snapped this photo of (ex) planet Pluto (shown with its largest moon, Charon, at the left), proving once again that man is capable of remarkable engineering feats:

Pluto, with moon Charon on left

This shot was taken by the New Horizons space probe from a focal point several million miles away from the dwarf planet, which seems like a lot only until one considers the ongoing nine-year long trip has taken the probe nearly 3 billion miles from Earth.

Congratulations to the NASA and Johns Hopkins APL team that conceived and executed this mission, and to those behind-the-scenes designers and manufacturers that built this one-of-a-kind system.

OMG and MacDermid? OMG!

Not nearly enough attention is being paid to the pending acquisition of OMG’s electronic chemicals business by MacDermid’s parent company.

This deal will throw even more market share to MacDermid, and the big question becomes how will smaller fabs (i.e., the vast majority of the North American and European markets) handle it? Many of them already use one or the other, and will doubtlessly be affected by the merger. I can’t imagine they are looking forward to this.

 

CAD Software Pricing Wars Heat Up

Another price/performance battle is heating up in PCB design software, and this time Altium could feel the burn.

Altium has experienced decent growth over the past few years, reaching about $75 million in annual sales. That’s not a huge sum compared to the Big Three of Mentor Graphics, Cadence and Zuken (subsequently referred to as MCZ), but it no doubt is getting the attention of the big boys, given the fairly modest pace of PCB design layout seat growth.

After dropping pricing on its signature Altium Designer tool from $14,000 to about $5,500 in 2008, Altium then raised them more than 30% a year ago this month, with some reports indicating even larger spikes, plus support.

Mentor today fired a big shot across the bow, pricing its newly configured shrink-wrap Pads suite at an entry level  price of $5,000, including a year of support. A mid-range version is priced at $10,000, in line with Designer once support is factored in.

Mentor made its move to target so-called independent users, those who may work for corporations but have the latitude to go outside the enterprise CAD system for their tools. That sector is characterized by engineering generalists who look for lower seat costs and aren’t driven by the particular tool. Will Altium counter move, or will it take a chance that it can wait out its deeper-pocketed competitor, hoping that Mentor lacks the patience to withstand the margin pain?

No matter how this plays out, a company can only grow so large in the shrink-wrap space. Enterprise is where the big bucks come from, and that space is dominated by MCZ. And that next move is Altium’s.

 

 

 

Fewer Reports Not in Altium’s Best Interest

Always a company that operates behind a veil of mystique, Altium will take that secrecy to a new level with its latest board decision which pares its quarterly earnings reports to semiannual announcements.

In a statement today, the PCB design software company said the decision came about following an investor roadshow in Sydney and Melbourne in February, where management pitched the notion that the quarterly reports somehow — and I’m reading between the lines here — distorting and negatively affecting the market perception by obscuring the “steady annual growth delivered by Altium” over past years.

“The overwhelming view of the investor community was that Altium has reached a level of maturity that allows it to focus on driving its business and, consistent with market practice, provide full year and half year reporting,” the company said.

OK, then.

The great thing about quarterly reports is that they force a company to be upfront with investors on a regular basis. Dial that back, and investors are going to make decisions based on data that are often less clear. I’ll be surprised if there’s any mass selling, given that many of Altium’s major shareholders are insiders, with current CEO Aram Mirkazemi holding about 9% of the company directly and more than 11% through holding companies, with the board holding more than 20% of the shares overall. But I suspect they will have a more difficult time attracting institutional investors.

Altium has set as a goal $100 million in annual revenue by fiscal 2017. It’s at an annual run rate of about $75 million right now. As companies get bigger, they need to keep in mind that their responsibility to their investors grows as well. We’ve been supporters of Altium’s unconventionality in the past, including the move to Shanghai, which some predicted would be the death-knell of the company. If anything, Altium has been very willing to think out-of-the-box, to its benefit. Reducing its earning reports is an ill-advised decision, however.

Will ‘OnCore’ Deal Spur Encores?

Fascinating how aggressive Natel Engineering has been with acquisitions over the past 18 months. First it gobbled up Epic, and this week it announced plans to nab OnCore. Epic was roughly 2.5 times the size of Natel at the time of that deal, and OnCore is almost the same size as Natel is now. Combined, they will form an EMS business with pro forma revenues of $770 million, 13 manufacturing sites and more than 3,700 employees.

And to think that as recently as September 2013, Natel had sales of $100 million spread across three factories, some of which were hybrid thick film, not SMT. That’s a stunning transition.

Can it hold? This latest deal is highly leveraged, and Moody’s gave Natel a B2 CFR rating, (obligations rated B are considered speculative and are subject to high credit risk; the 2 refers to mid-range) and a B1 LGD3 (loss given default) assessment (meaning ?30% and <50%, in Moody’s opinion). After the close, Natel will end up with $340 million in debt, between the new lender and a $60 million note issued by OnCore’s owner, Charlesbank Capital.

We’ve seen huge runups in the past, sponsored by equity capital, that have  burst into flames because the market couldn’t provide the necessary growth to sustain the acquirer’s debt payments. Viasystems is perhaps the most notorious example; that company ended up going through bankruptcy before finally stabilizing and operating in somewhat lower-key manner up until its announced acquisition by TTM Technologies last year. Flextronics went through one major flameout in 1990 before reappearing as a Singaporean company. Of the CIRCUITS ASSEMBLY Top 50 however, today most are few of undue private equity influence.

*********
For those wondering what EMS or PCB companies might be veering toward financial distress, here’s an interesting tool. I’m guessing Jabil ranks relatively highly on this because of its high exposure to Apple. Companies also seem to be penalized for a high P-E ratio.

API’s Changing of the Guard

API Technologies named a new president and CEO today, and, like his predecessor Robert Taveres comes from the component side.

That makes sense because API derives much of its revenue — and profit — from making RF/microwave components. The firm has made headlines of late, however, because its lead shareholder is also the largest owner of IEC Electronics, an API competitor on the EMS side. And that shareholder, the equity group known as Vintage Capital, has been engaged in what turned out to be a victorious proxy battle for the leadership mantle of IEC.

With a new board in place at IEC, and an EMS veteran in charge, will this mean a sale of API’s EMS business to IEC is in the offing?

 

Hats Off to Gary

Congratulations to Gary Ferrari, who last month became the 33d person to gain induction to the IPC Hall of Fame. For printed circuit board designers, this is something of a symbolic victory, as Ferrari is just the third designer (after Dieter Bergman and Vern Solberg) to make it in the IPC Hall.

Ferrari, who has been an occasional contributor to PCD&F over the years, needs little in the way of introduction to the current generation of designers, in the US and abroad. He has his name on all the major industry design and fabrication standards, having led the development of IPC-D-275 and IPC-RB-276 (now IPC-2221/2222 and IPC-6011/6012, respectively). He, along with Bergman, helped found the IPC Designers Council and drove the certification program. Along the way, he has trained or taught several thousand engineers and designers on a variety of topics from layout to heat management to standards to fabrication and assembly. While not the person whose name you will see on a book, Ferrari is still one of the first phone calls anyone with an engineering problem is likely to make.

The timing is bittersweet in that it occurred just months after the death of Bergman, Ferrari’s longtime friend and colleague. Still, it is a long time coming for one of the true iron men of the industry. I am thrilled for my friend.

What Apple’s Latest Supplier Audit Says About Apple

Apple’s annual supplier audit was released today and sure enough critics on both sides are already picking through the core and going at it over whether the company is doing enough to ensure the safety and compensation of the hundreds of thousands of workers who plug away in anonymity daily making Apple the wealthiest company ever.

Apple’s latest stats show a 92% compliance rate with its 60-hour workweek, and says the average workweek was less than 49 hours. Of course, that’s as it should be: Most of Apple’s supply chain is in China, whose laws cap the work week at 40 hours and monthly overtime at 36 hours. Adding nine hours per week over four weeks per month comes to 36, which means Apple suppliers are likely often breaking the local laws.

Indeed, that’s consistent with a separate study of nearly 100 Pegatron workers undertaken by labor rights group China Labor Watch, a constant thorn in Apple’s side, which found that more than half of the its workforce performs more than 90 hours of overtime per month, with some peaking at 132 hours.

Apple essentially ignores this by trying to turn a lemon into lemonade. It now touts its ban — as of October — on its suppliers’ charging workers to obtain jobs. As Apple senior vice president of operations Jeff Williams writes in the report, “You’ll see that we consistently report suppliers’ violations of our standards. … Because of these audits, over $3.96 million was repaid to foreign contract workers for excessive recruitment fees charged by labor brokers. And nearly $900,000 was paid to workers for unpaid overtime.” Williams says that this is proof that the system is working.

I don’t agree, but not because there are violations. I suspect any multibillion dollar company with operations (or contractors) in as many places that Apple has will encounter similar, if underreported, problems.

No, the reason I don’t agree is because the same subcontractors keep getting caught for the same violations. That shows a decided lack of regard for their major customer’s brand and mandates.

I think Apple is taking the problems seriously, but its supply chain is not. And the chain has no real incentive to change. As such, until Apple starts firing suppliers, the problems of what amounts to indentured servitude at its contractors’ factories will continue unabated.