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

What Does New CEO for Microsoft Mean for Hardware?

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In the end, Microsoft couldn’t pull the trigger. In Seattle, outside just wasn’t “in.”

The world’s largest software developer today named Satya Nadella, head of the the company’s Server and Tools unit, as its new chief executive. The 46-year-old Nadella becomes just the third person to lead Microsoft, one of the most successful and wealthiest companies ever.

Thus ends one of the longest mating calls since Prince Charles’. Microsoft was reported to have danced with a bevy of blue chip candidates, including Ford Motor CEO Alan Mulally, Qualcomm COO Steve Mullenkopf, and Oracle exec (and former HP head) Mark Hurd, among others.

So when John Thompson, Microsoft’s new chairman, says, “Satya is clearly the best person to lead Microsoft,” one wonders why it took so long for them to recognize it. Perhaps they had to go through the rituals before realizing the prettiest date was the one they already live with.

In opting for Nadella, Microsoft eschewed calls to go outside for an executive who might shake up its culture or sell of pieces to boost its share price. Like Intel, it chose continuity and engineering prowess over salesmanship and the flavor of the day.

My take is Microsoft’s culture isn’t the problem; it’s been the top management’s inability to establish the proper hierarchy to allow the brilliance of the company’s thousands of engineers to come through. Time and again, Microsoft has had great ideas on the drawing board, but been beaten to market by competitors that simply execute much faster (read: Apple). Under Nadella, that will have to change.

Clearly Nadella understands how hardware can drive software purchases. As head of Microsoft’s Server and Tools business, he led a $19 billion, 10,000-employee entity that is front and center in the world of cloud computing. As he told Venture Beat in an interview last May, “We broadly as a company are moving from a software company to a devices and services company, and that’s really the transformation, both in terms of technology and delivery – as well as business model. What I do, what our division does is very central to this.”

Given his knowledge of the hardware supply chain, we are eager to see whether Nadella sees value in pulling manufacturing in-house. Such a move could demonstrably alter the EMS landscape for years to come, not because Microsoft is a dominant customer of any of the major contract assemblers — Flextronics builds the Xbox, but none of the Top Tier EMS firms counts Microsoft at a 10% or more client — but because OEMs have a herd mentality and if it works for Microsoft, they will likely follow.

Thanks to the roughly $100 billion in cash Microsoft has on hand, Nadella will have the resources to get wherever he wants to go, and, with Steve Ballmer retiring and Bill Gates stepping down as chairman, he will have full authority to make the tough decisions without the specter of the founders looming over his shoulder. Those two decisions — cofounder Paul Allen stepped aside years ago and is now seen rocking out at Super Bowl parties for the Seattle Seahawks, which he owns — should not be downplayed, as Nadella will not only need the financial backing but the unmitigated authority to make Microsoft as successful in next three decades as it was in the last three.

Taiwan’s New Gravity

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How bad is the labor problem in China? We are aware, of course, of the steady hikes in wages, which have annually risen by at least double-digits for over a decade.

But now it’s being reported that Taiwan-based component makers have had enough, to the point where some are considering repatriating their production from China, or packing it up for Brazil, Mexico and elsewhere in Southeast Asia.

Now, I’m not going to put too much stock in an unsourced report. That said, the notion that Taiwan could steal back jobs from China has been floating around for months. The average salary in Taiwan has risen just 0.9% in the past decade, despite a working population of just 11 million. (China, by contrast, has an estimated 920 million working aged citizens.) Monthly wages in Taiwan’s manufacturing sector were NT 41,087 (US$1,358) as of October,  and have trended considerably more slowly than China for some time.

All in all, it’s a stunning development, given that just a few years ago China’s promise appeared mostly still in the “potential” stage. Is it possible that promise will ultimately go unfulfilled?

Alder’s Quiet Retirement

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In the quiet of the post-Christmas vacation break Kent Alder officially retired as CEO of TTM.

The news should be bigger than it is. It’s been years since the head of a $1 billion a year US-based PCB manufacturer stepped down. In fact, there probably have been only two: Andy Leitz, who left Hadco following its acquisition in 2000 by Sanmina, and James Mills, who was ousted from Viasystems after the tech recession in 2001.

Alder rose to prominence on the wave of the massive influx of outside investment groups that circled the industry in the late 1990s and early 2000. He was president of Pacific Circuits, a Redmond, WA-based board shop owned by Thayer Capital Partners and Brockway Moran, which then acquired Power Circuits in Santa Ana, CA, and renamed the merged entities TTM, with Alder as the head. On Alder’s watch, TTM grew from $125 million in 1999 to about $1.35 million in 2013. Along the way, TTM acquired Merix and OPC, and extending its offerings from that of a traditional regional quickturn PCB supplier to a full-service multinational production house with nearly 20,000 employees. And he did so because TTM managed to consistently do that one thing that has been so difficult for some many of its competitors: turn consistent profits.

It remains to be seen what kind of leader Tom Edman, Alder’s successor, will be. He has an impeccable resume: Yale, Wharton Business School, and 17 years of executive experience at Applied Materials before being tapped for the TTM job. He showed his chops by beating out at least one longtime internal candidate for the post.

But for now, we acknowledge Alder’s role as the preeminent PCB executive of the past decade, and wish him the best in his retirement.

System Failure

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Apple is front and center today saying the death of a 15-year-old worker at one of its subcontractors was not the result of conditions at the Pegatron factory in Shanghai.

The teenager died of pneumonia, according to news reports. He was employed after using someone else’s ID to get the job.

It’s very sad that this happened. But the truly uncomfortable fact is that the worker was 15.

Apple’s response, as usual, was stiff and unconvincing: “Apple has a long-standing commitment to providing a safe and healthy workplace for every worker in our supply chain, and we have a team working with Pegatron at their facility to ensure that conditions meet our high standards.”

Underage workers continue to gain employment in Chinese factories. Why does this continue to happen there? Is it a failure of management? Is it cultural? And how many others will die before the system is fixed?

 

 

Philippines Relief Efforts

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As the Philippines begins to recover from the devastation of typhoon that left an estimated 10,000 people dead and countless others homeless, we reached out to old friend Fred Blancas of Integrated Micro-electronics Inc., the Laguna-based EMS company, to see how our readers could help. Here’s his response.

Dear Mike,

Thank you for your effort to ask your readers to help. They may send donations through the Ayala Foundation Inc., the corporate foundation of IMI’s parent company Ayala Corporation. The Ayala Foundation’s donation channels for victims of recent natural calamities are listed below.

For donors based outside the Philippines

1. Wire transfer: Use the USD bank account details below:

Account name: Ayala Foundation, Inc.

Account number: 0014-04630-48

SWIFT Code: BOPIPHMM

Bank: Bank of the Philippine Islands

Bank Address: 6768 Ayala Avenue cor. Paseo de Roxas Makati City 1226 Philippines

Note: If there are donations expected from foreign sources, please advise us for proper identification of bank credits.

2. Feed the Hungry. For US-based donors who want to make a tax-deductible contribution, please mail your check to: Feed the Hungry, Inc. 6419 Floridon Ct. Springfield, VA 22150.

Kindly indicate “DONATION THROUGH AYALA FOUNDATION (AFI)” and specify that it is for Victims of Typhoon Yolanda and Bohol/Cebu Earthquake.

You may also donate through the official Feed the Hungry website. Select “Bridge of Hope – AFI,” and specify that it is for Victims of Typhoon Yolanda and Bohol/Cebu Earthquake. http://www.ayalafoundation.org/?donate=donate-2

Many thanks,

Fred

The Weakest Link: Musings from SMTAI

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Due to an illness, I jumped in to co-chair a session at SMTAI yesterday. In doing so, I had the pleasure of spending a little time with a longtime industry machine designer. Afterward, he asked an interesting question:

Talking to all these (industry veterans), I’ve seen a common thread. Almost all are unhappy and hoping to make it to retirement while continuously looking over their shoulder and waiting for the shoe to drop. Perhaps it’s a function of have been through too many downturns. Almost all say they are working harder than ever for less money than ever. Staff reductions of years ago have never been replenished.

Griping aside, they are all keenly aware that there is no one to step in to fill their shoes, be it process engineers, quality managers, field service, you name it. They all state they’re on their own with no replacements in sight. What’s your take on this and if they’re correct, will the industry grind to a halt?

Great question! I agree with the sentiment expressed — small/no raises, more work, no bench from which to develop new engineers. These have been problems for the past 10 years.

That said, I see some underlying trends that make me more bullish than some. For starters, there’s never been more entrepreneurs at the college level. I have been spending time researching tech incubators and have come away stunned at the level of talent and energy. The so-called hobbyist market is booming: 140,000 attendees at the Maker Faire event in San Mateo this year, and they all come to see innovation in action. In researching open source pick-and-place software earlier this year, I learned that there are some 2,000 desktop placement machines out there, and an engineer is behind every one.

There is an abundance of talent designing and building electronics hardware and related tools these days. They just aren’t doing it at the usual places like IBM or HP. It’s more under the radar, but it’s there. Google, for instance, has 5,000 workers doing box build and test in Mountain View. There is a lot of hiring going on at growth companies; it’s just no one talks about it.

During the SMTAI Keynote this week (a really interesting, if a bit inflated, talk on the F-35 warfighter by retired US Navy General Bob DuLaney), I asked whether he saw a way we could better leverage such state-of-the-art technology in order to get more engineers interested in the industry. His response was that he couldn’t see how any engineer wouldn’t be excited to work on such a project. Point, DuLaney, but if I had it over, I would have asked the question this way: How could a company like Lockheed Martin ensure product builds come in on time and on budget when the supply chain it depends on for materials, bare boards, assemblies and so on is struggling mightily to recruit and retain top engineering talent?

For my bigger concern is really the lack of interest by new engineers in the smaller companies that supply the big ones. The Lockheed Martins and Raytheons will always attract talent. But they buy much of their bare boards and assemblies from companies that are considerably smaller, local and less well known. Those firms are the ones having trouble recruiting and keeping talent. For those who do it well, it’s become a strategic advantage. And as long as the Tier 1s have to outsource, their ability will always be limited by the weakest links of their supply chain.

Benchmark’s Latest Acquisition

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Is Benchmark’s acquisition of CTS a good move?

Yes, it says here, and for multiple reasons. In no particular order:

1. Profits. Benchmark says the acquisition will be accretive starting in fiscal 2014, which suggests they think they can make it profitable in short order (Bench’s fiscal year ends Dec. 31.) Before reporting successive losses in the first and second quarters of 2013, CTS had turned in 10 straight quarters of operating profits.

2. Integration. It’s true CTS’s first-half revenue ($97 million) was down from 2012 ($148 million) and 2011 ($158.4 million). For that matter, it’s down versus 2008 ($197 million, ’09 ($146.6 million), and ’10, too. It compares most closely to 2010 ($122.6 million). But to be fair, CTS has been closing plants, which in part drives the revenue loss. (Of course, had those sites been profitable, perhaps they’d still be open.) This may play in Benchmark’s favor in that the organization as currently sized should be fairly easy to integrate.

3. The better mix will help margins. IBM was 21% of Benchmark’s revenue in 2012, more than twice the percentage in 2010. Benchmark has been looking to balance its (over)dependence on the computing segment. CTS is focused on industrial, automotive, aerospace and defense. This pickup will definitely help.

4. CTS’s footprint is in areas where Benchmark is strong. The deal includes five sites, four in North America (two in California, one in New Hampshire and one in Mexico) and one in Asia (Thailand). (While CTS still lists two EMS sites in Scotland and one in China on its website, these have either are already closed or are now being shut down.) As for the acquired sites, CTS will shut down the sites that they can’t fill, and move production to existing plants. They might lose a few customers along the way, but probably not so much that it will hurt them. Moreover, the deal doesn’t force Benchmark to learn a new region on the fly.

5, Benchmark’s track record with acquisitions is good. That’s not to say every site remains open. Far from it. But Benchmark doesn’t bite off more than it can chew, and that’s improvement in industries as cyclical and cash-intensive as EMS.

Since CTS is losing money, good luck calculating the valuation as a multiple of earnings. In that regard, the $75 million price tag seems a big high. By comparison, Benchmark paid $19 million in June for Suntron, which had sales of about $70 million. Given that CTS is more expensive, I’m guessing it is operating closer to breakeven than Suntron was.

 

Tool Reconditioning: Part of a Lean Program

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Although many manufacturing processes have become automated over the past 20 years, a fair amount of manual or hand assembly and rework is still required. Gone are the days when electronics and industrial assembly required row upon row of technicians carefully assembling circuit boards, electronic modules or entire assemblies without the assistance of automated or semiautomated equipment.

Today, lean manufacturing procedures are accepted and implemented by most companies to help reduce expenditures, improve quality, shorten lead times, and improve the bottom line. Cost-saving measures need to be carefully reviewed to ensure they can deliver without sacrificing quality. One cost-saving option that seems to fly well below the radar within many companies is hand tool reconditioning.

Now, the term “hand tools” covers a very wide spectrum, so let’s zero in on just a few items for consideration. Within electronics manufacturing , cutting pliers and cutting or precision point tweezers are still used extensively for a wide variety of applications. When you consider high quality cutting pliers can cost $40 to $150, and quality cutting tweezers can cost between $30 to $125, it becomes obvious that simply disposing of these tools when they get dull or no longer function properly is a waste of money.

The same issue applies to crimpers, probes and other similar tools. Refurbishing or reconditioning services are available that, when done properly, can provide extended service life to these tools by as much as four times. Typically, the cost to refurbish a tool is about 75% less than the cost of buying new, and in many cases, the refurbished tool will function as good as (or often better than) a new tool. In addition, reconditioning pliers will usually include resharpen jaws, new grips, new springs and a complete buff and polish. In effect, the tool is like brand new at a fraction of the cost.

Before you consider a reconditioning program for your electronic or industrial hand tools, do your research. Most tool manufacturers do not offer or promote reconditioning tools, for obvious reasons. High quality (and expensive) cutting pliers and tweezers are manufactured to very high standards, especially in regards to the cutting edge itself. Reproducing the original cutting edge profile, without affecting the temper of the steel, is a true science and requires a technician with vast knowledge of grinding techniques and equipment, as well as an extensive knowledge of the various manufacturer’s specifications. When considering a reconditioning service, ask the vendor to recondition a few of your tools for evaluation and test, at no charge. This will provide you with a baseline of what you can expect in the future, and you can then compare the functionality of the reconditioned tool as compared to a new tool. If refurbished properly, tool life should be equal to or better than new.

Taking a few moments to audit your tool expenditures for any given year will help put these cost savings into perspective. Saving 75% of your “new” tool expenditures over a given period should fit nicely within most lean manufacturing formulas. As mentioned, this is a cost-saving consideration that continues to fly under the radar within many companies. I’m betting your tool crib has bins full of non-useable tools. Or are they?

— Jim Norton (guest blogger)

Poison Apple?

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Move over, Foxconn. First Pegatron and now Jabil have joined you on the Apple-watcher hit list.

In June, the New York-based employee rights group known as China Labor Watch singled out three Pegatron sites for worker abuse. The alleged violations are now like a refrain: excessive overtime, harsh working conditions and employment of underage workers.

Today it was Jabil’s turn, as its Green Point unit in Wuxi drew CLW’s ire. Perhaps most concerning is the accusation that Jabil workers must agree to a “list of punishments.” That sounds sickening and demeaning.

The common thread, of course, is Apple, whose corporate standards are apparently more for show than practice.

Chinese law prohibits more than 49 hours of work per week. Yet the CLW report shows 80% of the 80 Jabil workers interviewed put in more than that. While both Apple and many workers claim they want the overtime, the sad truth is they need to work the extra hours in order to make sufficient wages. Yet with Apple sitting on more than $100 billion in cash, it’s illogical to argue that company needs to suppress wages in order to make its iPhones and related products affordable to Western consumers.

Just 18 months ago, then Jabil CEO (and now chairman) Tim Main excoriated Foxconn for its “very abusive policies, employment policies.”

“I think their business will begin to suffer because of the way they treated their employees,” Main told Jabil shareholders. “And you can all be quite comfortable and proud that, you know, that’s not your company. We treat people like human beings like we want to … treat our own kids. So you don’t have to worry about that with us.”

Sadly, CLW’s report says something very different.

At the time of Main’s comments, Apple had just become a 10% customer of Jabil. Now, Apple is estimated to make up 13%, or $2.23 billion, of Jabil’s annual revenue. So like Foxconn and Pegatron, does serving Apple necessarily cost a company its soul?

Correlation is not causation, but the circumstantial evidence is getting mighty difficult to ignore. Will any EMS company be able to resist the temptation of Apple’s poisonous riches?