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

Why Cook Won’t Change Apple’s EMS Recipe

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New Apple CEO Tim Cook will make no changes to its outsourcing recipe.

That’s my take, based on an assessment of the iPhone maker’s balance sheet.

Cook, of course, has been named to succeed Steve Jobs, who has been fighting a particularly deadly form of cancer.

Foxconn is telling reporters the change at the top won’t impact the companies’ relationship. I couldn’t agree more. It can’t. Much like the US-China relationship, Apple needs Foxconn, and Foxconn needs Apple. Apple carries some $11 billion worth of outstanding off-balance sheet commitments for outsourced manufacturing and components, plus another $1.6 billion committed to manufacturing equipment, presumably for the Foxconn-run plants.

Why would Apple commit all that cash to equipment purchases, when it does not have the internal capacity to build product itself? Because it owns the machines in the Foxconn plant. Although Foxconn has moved much of its Shenzhen campus operations inland to take advantage of lower labor costs, rumor has it the site remains open solely for the benefit of Apple. Apple is said to pay Foxconn roughly $6 for every finished working assembly.

With demand for Apple’s iPads, iPhones, Macs and iPods cresting, it couldn’t leave if it wanted to. If anything, Foxconn is in better position to absorb the loss of Apple than the other way around.

HP PC Spinout Effects, by the Numbers

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Here’s the first report I’ve seen that gets into the nitty-gritty behind the possible supply chain effects of HP’s PC spinoff/sale.

TrendForce was good enough to pull together the PC market share rankings and puts forth a cogent explanation of several possible outcomes, including — believe it or not — a potential hindrance to the Foxconn manufacturing tank.

Interestingly, while many pundits don’t believe the Taiwanese ODMs have the financial girth to absorb HP’s market-leading PC unit, one of the emerging possibilities would be Samsung, whose incentive to snatch it up would go (far) beyond box sales. Indeed, as TrendForce points out, Samsung could leverage the PC chain to create additional sales for its components and batteries. Samsung is flush with cash — more than $55 billion on its balance sheet, of which $20 billion is in cash or equivalents. (The head of HP’s PC unit says it is worth more than $10 billion.) It could handle the financial strain of taking on HP’s PC arm, even though revenue runs in the tens of billions per quarter and its operating profit has grown seven of the past eight quarters.

If an outside suitor doesn’t materialize, HP has a successful track record of spinning off businesses, with Agilent being the most prominent. If that happens, the supply chain status quo might be maintained.

Something to think about.

 

 

Just What is ‘Core Competency,’ Anyway?

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I want to call attention to this long overdue piece by Forbes’ columnist Steve Denning.

Under the tantalizing headline, “Why Amazon Can’t Make a Kindle in the USA,” Denning makes the case that management, not manufacturing, is to blame, for its rather thoughtless, follow-the-herd mentality (my words, not his).

Case in point: Dell, which little by little gave more and more of its PC manufacturing and  design to Asustek, until the day came when Asustek had developed all the in-house expertise it needed to become an OEM. It no longer needed Dell. And while one could say Dell (whom I am using as a proxy here, as this scenario applies to scores of Western businesses) would have been eaten up by competition sooner or later anyway, the fact is one of its major suppliers — Foxconn — practically prints money, while Dell and fellow PC outsourcer HP look for ways to escape that low-margin business.

For nearly two decades, the EMS industry has sold the OEMs on the idea that they should outsource their lower-margin activities, while simultaneously refuting any suggestion that by doing so OEMs were setting themselves up to be replaced by their own suppliers. “We’re not in the business of ____,” was the EMS refrain. Well, they weren’t until they were. And then it was too late for OEMs to do anything about it.

Unlike populists like Lou Dobbs who shout that the loss of manufacturing must have a political solution, yet fail to consider the intricacies of what they propose, Denning takes a more nuanced approach. (I’ll add my two cents: If Wall Street could manage your business, why aren’t they?)

It’s worth your time to read.

H-P Bets on the Cloud

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Hewlett-Packard designed and built its first computer in 1966. Has it designed and built its last?

Various Wall Street sources are reporting today that the world’s second largest electronics company will spin off its PC unit in order to concentrate on servers and services. If true, it marks the end to an extraordinary era — one that saw H-P race neck-and-neck for years with IBM and Digital Equipment in the mainframe space, then after falling behind Dell in PCs, snatch up Compaq in a move that was generally panned but turned out to be a masterstroke.

Still, over the past several years PCs  became an ever lower-margin business filled with low-cost competitors. Moreover, the emergence of shared-server computing — aka, “the cloud” — posed a threat to those who poured resources into branded laptops and desktops.

It says here this move is H-P’s way of saying that it, too, believes cloud computing is the future, and the money to be made will come from selling the heavy-duty hardware, not billions of “dummy” terminals that are hooked in to it.

Zollner Hits the ‘Valley’

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I’ve been anticipating for some time the influx of offshore EMS companies. There’s been the occasional deal, of course. Elcoteq jumped in, then out, then in again, then out again. IMI bought Saturn Engineering in 2005, and Asteel acquired FlashElectronics in 2008, but for the most part, the “outsiders” have stayed out.

It’s struck me as strange for many reasons, two big ones being the access to the lucrative US market (and the decision-makers at many of the world’s top OEMs), and the cost of acquisition, which with the depressed dollar means US firms could be bought relatively cheap.

Today, however, Thailand’s Cal-Comp, Singapore’s Venture Corp. and Japan’s SIIX are Top 10 EMS companies without US holdings.

But for Zollner Elektronik, No. 12 on the CIRCUITS ASSEMBLY Top 50, that’s no longer the case. Zollner has taken over and is remodeling a 52,000 sq. ft. site in Milpitas, a Silicon Valley town, where it will open its first wholly owned US factory. Zollner is Europe’s second-largest EMS company, although after this year it just might supplant Elcoteq for that honor.

Founded in 1965 by Manfred Zollner,  Zollner has become a leading supplier of industrial and automotive electronics. Today it has 13 plants in Europe and one each in China and Northern Africa. The company has more than 7,300 employees worldwide, and we estimate its annual sales at around $1.2 billion.

Zollner plans its new site to be a dedicated NPI center, which makes sense given the size of the US market today and the number of competitors (more than 250 alone in the Silicon Valley, according to the CIRCUITS ASSEMBLY Directory of EMS Companies).

Is Zollner’s move the first of many? Other major EMS companies abroad — Beyonics (which is made up of many former Flextronics executives), UMC and Sumitronics in Japan, GBM, 3CEMS and Nam Tai in China — generally do quite a bit of business with North American companies already. And US-based Fabrinet has all its plants in Thailand or China. A successful model does not mandate a US presence.

Still, growth in electronics outsourcing will be harder to come by. Most analysts believe all the low-hanging fruit is gone. Soon, EMS gains will be made primarily by grabbing market share, not tapping new markets. When that day comes, will those without a US facility find themselves shut out?

SEMI’s Loss is IPC’s Gain

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It didn’t take long for me to become wary of Denny McGuirk.

At the time he showed up as Thom Dammrich’s successor, I had worked at IPC for six years and had a fairly good sense of what kind of person it takes to run a successful trade association. McGuirk came in with a resume and life stories that would have put Forrest Gump to shame. Unfortunately, I couldn’t verify some of those tales, which as Director of Communications — and thus responsible for helping to shape his image — made me pretty uncomfortable. When my current boss, Pete Waddell, called to say he was in the market for an editor, I jumped not just at the new opportunity but also to get away from a person whom I felt I could not trust.

Next to marrying my wife, it was the best decision I’ve ever made.

McGuirk announced his resignation today, deciding to bolt IPC after 12 years for greener — literally — pastures. He is headed to SEMI, the trade group for the semiconductor materials and equipment industry. He stands to make a considerably higher amount of money, given that SEMI paid its head honcho more than $700,000 a year in 2009, while McGuirk took home “only” $368,000 in compensation that year.

This, I believe, will turn out to be the best thing that’s ever happened to IPC. SEMI and IPC appear to be competing for certain markets, including the high growth solar and photovoltaic segments. But McGuirk is not, and never will be, an industry maven. He’s a bureaucrat whose disinterest in the inner workings and details will likely undermine the cohesiveness and focus of those who actually know what’s going on. Over the years,  task group members and IPC staff have complained to me about the deleterious effects of McGuirk’s approach. When you head an organization made up of volunteers, it’s usually a good idea to make sure those volunteers stay happy and motivated. But inside IPC today, far more than 12 years ago, alienation abounds. And with the press, McGuirk has had a lot of trouble keeping his own stories straight, which has led some of us to essentially ignore anything he says. Given that trade associations generally don’t spend much on self-promotion and thus rely heavily on the business media for help, that’s not a good position to be in. No matter who succeeds him, I think IPC will be better off.

Then there’s the question of what he really accomplished. In October 1999, IPC was a Chicago based trade group with an interest (but no real footprint) in other regions and dependent on trade show revenue for the bulk of its operating profit. Today IPC is a Chicago based trade group with an interest (but no real footprint) in other regions and is even more dependent on trade show revenue for the bulk of its operating profit. While the trade group has opened an office in China, the shots are called from Bannockburn, IL, and it is unclear what impact the local operation has had, other than perhaps a marginal increase in membership. Trade shows and related conferences once made up 25% of IPC’s operating budget; today it’s closer to a third. After putting thousands of dollars in IPC’s coffers for certification, the printed circuit board design industry is no better off than it was 11 years ago. Despite professing to wanting to work with other associations, relations between IPC and SMTA hit an all-time low. On matters of  widespread industry import — such as the European Union’s banning of lead — IPC has shown little spine, choosing to capitulate without drawing its sword, even though the cost to its members is estimated to be in the billions.

Looking back, the one smart improvement was that IPC has effectively vacated the governmental lobbying business (although it does occasionally draft off others’ efforts in this area). And its bank account is in better shape, even if those of its members are not.

Speaking of finances, on McGuirk’s watch, IPC’s revenues have fluctuated a bit, but incremental gains have usually been met with subsequent losses. The trade group’s budget was a little over $10 million in 2000, the first full year McGuirk was the head. But despite the addition that year of the Apex trade show, which added at least $3 million a year to the coffers in the early 2000s, IPC’s revenues were just over $12 million in 2009, the last year public tax records are available. That suggests revenue from standards, certification and training programs has slipped during that time, despite IPC’s expansion into several foreign markets.

Still, IPC’s rather nominal growth has been better than that of many of its members, which has rankled some segments, especially North American board fabricators. On McGuirk’s watch, the US bare board industry shrank from about $10 billion in annual revenues and a neck-and-neck tie with Japan for the largest producing market to a little over $3 billion in domestic sales, well behind China, Taiwan, Japan and Korea. EMS has also taken a big hit: companies are less profitable than they were a decade ago, and the one region that has excelled — China — did so without IPC’s help.

It’s not the kind of thing you put on your resume.

Unless, of course, no one is really reading it.

Summer Doldrums

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Is it cyclicality, or … ?

Many reports, anecdotal and evidentiary, point to a general slowing in PCB production and sales over the past quarter.

Yet there are some reasons for optimism:

I am of the mindset that what we are seeing is a return to cyclicality after roughly two years of recession followed by a year-plus of bottled-up demand. Clearly there’s some market turbulence ahead, especially when we take the macro vectors into account. Some of the end-markets need a boost: Now that Windows 7 has taken over, PCs are stagnant, with new tablet demand offset by rather humdrum desktop/laptop interest coupled with some migration to smartphones. Nokia and RIM are skidding, and Apple can’t make up for everyone’s lack of flair. Autos are a big-ticket item and many consumers today need stronger feelings of job security before taking on new debt.

A forecast slowdown in US defense spending (the nation’s fiscal year starts in October) could be partially offset by new deliveries of jumbo passenger jets (Boeing last month announced a record single order and will ship its first Dreamliner next month).

The tea leaves are murky. We hope for the best.