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

False Statement Plagues Mentor Plea

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Mentor today again exhorted shareholders to vote for its current slate of directors and reject activist investor Carl Icahn’s alternate nominees.

In the open letter, Mentor pointed to its improved revenues over the past few quarters, calling it proof that its strategy is working. That alone provides ample evidence the EDA company is headed in the right direction, although it remains to be seen whether Mentor boost sales profitably, which has been Icahn’s point all along.

In the letter, Mentor argues against what it calls Icahn’s desire for a “public sale.” “The linchpin of Icahn’s platform for his nominees continues to be a risky public sale process for [Mentor]. This public sale process might provide Icahn with liquidity, but has the potential for significant value destruction and could derail the business and financial momentum that Mentor Graphics currently enjoys,”  the letter states.

Does Icahn want to be in the software development business? Of course not. And this is a polite way of saying so.

But more troubling is the company’s continued obsession with any alleged regulatory issues of a potential sale.

“It is clear that Icahn is simply continuing to ignore the regulatory obstacles and commercial risks to any transaction with Synopsys or Cadence, despite knowing that the analysis we recently performed shows that there are serious regulatory risks to any transaction with these two companies. He also continues to ignore the destruction of value through loss of customers and employees from any failed process to sell the company.”

Again, Mentor positions the only two logical buyers as Synopsys or Cadence, when in fact, they are perhaps the least logical buyers, for a multitude of reasons.

This line of argument is, at best, disingenuous*. As we’ve noted before, Cadence is heavily in debt and already made one failed play at Mentor, a move that helped cost then-CEO Mike Fister his job. Synopsys has shown little taste for PCB tools over the years and has made no indications it is at all interested now.

So who else would be potential buyers? In no particular order:

  1. National Instruments is coming off a record quarter, and has one of the best balance sheets in EDA today, with $385 million in cash and no debt. It is slightly larger than Mentor overall, but it would certainly be large enough to absorb the latter’s PCB unit.
  2.  Mechanical and PLM software developer PTC also is slightly larger than Mentor. It acquired Ohio Design Automation in 2004, giving it a small inroad to EDA. With its Winchill and Pro-E suites, it has a dominant place in MCAD. Given that some ECAD vendors are trying to extend into the MCAD space, it stands to reason PTC might see the value in going the other way.
  3. Siemens clearly has both the financial girth and potentially the general interest. The conglomerate has a huge stake in PLM with Tecnomatix and Unicam, and is attacking factory line software as well. By owning the PCB side of the equation, Siemens could hypothetically offer manufacturers a single solution encompassing ECAD, PLM and traceability, without the need for machine translators at pick-and-place and test, for example. (This would not happen overnight, if ever, of course.) As for its financials, well, it was the world’s third largest electronics company in 2010, after H-P and Samsung, according to Forbes, with $103 billion in sales.

I’m looking at this only through the PCB lens, of course. But the universe of potential companies that could both afford and possibly desire Mentor in some shape or form is clearly much larger than two. While Rhines deserves the opportunity to continue to run Mentor without Icahn’s interference, it also would behoove Mentor to stop treating its shareholders as fools, as doing so undermines its rational — and strong — argument for the status quo.


*Disingenuous: not straightforward or candid; giving a false appearance of frankness; “an ambitious, disingenuous, philistine, and hypocritical operator, who…exemplified…the most disagreeable traits of his time”- David Cannadine; “a disingenuous excuse”  (Source: Dictionary.com)

Whither Kaifa?

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Should Shenzhen Kaifa Technology be included in EMS Top 50 lists?

It’s not an easy question to answer. On revenue alone, perhaps: Kaifa, as the company is known, had sales of about $4.4 billion last year. Using that gross number would place it squarely between Sanmina-SCI and Cal-Comp in the Top 10.

But there’s more to it than that. Kaifa generates an extraordinary amount of its revenue from making and selling hard disk drives to Seagate. In fact, under most classifications, Kaifa would rank as an ODM, and not just of printed circuit board assemblies.

Then there’s the confusion of what, exactly, is Kaifa.

The company, which is supposedly traded under the ticker symbol 000021 on the Shenzhen Exchange, has no current listing. However, it is also apparently a subsidiary of China Electronics Corp.

CEC is giant: the conglomerate says its annual revenues topped $8 billion back in 2006 and it employs more than 70,000 workers across some 61 subsidiaries, including 13 listed holding companies. Among them are cellphone and datacom OEM Panda Electronics,  computer and TV manufacturer Greatwall Technology, and yes, Kaifa.

It also is state-owned, and operates directly under the administration of China’s central government.

Forget, for the moment, how strange it is for what is essentially government entity to be publicly traded. Consider instead whether a government business can be considered a contract manufacturer, especially in China, where the Communist Party still holds sway over most economic policy and can pick the winners and losers at the drop of a hat.  Want to get a government contract? Use a government provider. It becomes hard to distinguish between what is competitive bidding and what is political.

Then there’s the matter of CEC’s financials. They are dense, to be sure. It’s hard to tell what revenue comes from external customers and what is just “padding” from its own pyramid. Among those that can be discerned, Great Wall alone made up $1.6 billion in revenue last year. Read the fine print and you’ll see the company has several “deals” in place to buy components and services from other CEC subsidiaries.

So should Kaifa be listed on the Top 50 EMS charts? Because it is next to impossible to know what its true revenue from EMS related activities is, I say no, while respecting the decision of others to disagree.

Viasystems, 15 Years Later

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This fall marks the 15 year anniversary of Viasystems. Who woulda thunk it?

When Hicks, Muse, the investment firm behind the PCB manufacturer, first hit the scene, in fall 1996, it quickly made a statement like no other in our industry, before or since. In quick succession, they snagged AT&T’s board shop in Virginia, Circo Craft, Kalex, Forward Group, ISL, Mommers and Zinocelere, plus several EMS and peripheral businesses. Longtime shop owners stood in line, waiting to be bought out.

When things crashed in 2001, it looked for a while Viasystems couldn’t hold up. Debt was over $1 billion. Bankruptcy beckoned.

But David Sindelar, the company’s original CFO who was named chief executive in July 2001, has turned things around. Such stories aren’t as common as we might hope in the PCB industry, where high capital investment and maintenance costs and severe pricing pressure make life excruciating for even the handful of companies that don’t misstep. It’s an industry that doesn’t easily forgive mistakes.

Now, as he approaches 10 years on the hot seat, Viasystems is profitable and it’s long-term debt is down to $215 million, even after its high profile acquisition of Merix. Sanity has returned; Hicks, Muse’s influence is nowhere to be seen.

It’s a great, albeit unlikely, story.

‘Job Well Done’

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Nearly 10 years ago, Osama bin Laden spurred one of the most heinous acts ever perpetrated on US soil. While I can understand how bin Laden’s warped worldview came about, I certainly do not agree with it, let alone with his many acts of terrorism on innocent citizens
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So today I salute the efforts of thousands of men and women who have worked day and night since to bring bin Laden down. And I likewise salute the many ingenious electronics devices that aided those efforts. No manhunt of this scale could be successful without tremendous shoe leather. But the electronics design and manufacturing industry deserves a huge “job well done” for coming up with the systems for listening, watching and communicating that allowed the US to find and kill bin Laden in his own hideout and without losing a soldier. That’s impressive.

‘Job Well Done’

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Nearly 10 years ago, Osama bin Laden spurred one of the most heinous acts ever perpetrated on US soil. While I can understand how bin Laden’s warped worldview came about, I certainly do not agree with it, let alone with his many acts of terrorism on innocent citizens.

So today I salute the efforts of thousands of men and women who have worked day and night since to bring bin Laden down. And I likewise salute the many ingenious electronics devices that aided those efforts. No manhunt of this scale could be successful without tremendous shoe leather. But the electronics design and manufacturing industry deserves a huge “job well done” for coming up with the systems for listening, watching and communicating that allowed the US to find and kill bin Laden in his own hideout and without losing a soldier. That’s impressive.

 

The Cost of Misunderstanding Standards

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An article in the latest issue of Assembly magazine asserts that use of standards, specifically IPC-A-610 and J-STD-001, raises the cost for US manufacturers and has led to the widespread offshoring of assembly.

The premise of the article, authored by a Dr. James A. Smith of Electronics Manufacturing Services Inc., is that standards drive up costs. This is stunning in that it completely mischaracterizes a core reason standards exist: to ensure widespread uniformity to a predefined level of quality.

Indeed, as someone who has traveled extensively abroad — I have spent more nights in Shanghai than any city other than the ones I have actually lived in — I can unequivocally state that manufacturers in China, Taiwan, Malaysia and so forth use IPC-A-600 and IPC-A-610 almost exclusively. And the reason is, those are the standards that their Western customers demand. Southeast Asia might offer lower labor rates, but that has nothing to do with IPC-A-610. As they used to tell me in stats class, correlation isn’t causation. I’m surprised Dr. Smith’s grad school teachers didn’t drill that conceit into him.

In the article, Dr. Smith asserts that “cost-plus” contracts reward poor manufacturing by ensuring that the assembler gets paid a set margin even if low yields lead to high rework costs. Besides being expensive, rework, of course, can be detrimental to the long-term board quality. Says Dr. Smith:

Some types of heat damage—lifted pads, delaminated circuit boards, and melted component bodies to name a few—are easily recognized. However, soldering iron heat causes serious degradation inside components such as ICs where the damage can’t be seen. The most prominent example of such damage is accelerated growth of the intermetallic (“purple plague”) between the gold wire bond and the aluminum pad on the chip substrate. As the intermetallic grows, electrical resistance inside the connection increases and switching characteristics change; depending on the sensitivity of the circuit, this change alone can be fatal. Even worse, Kirkendall voids develop in place of the pad material and breaks develop around the edges of the pad.

Therein lies the problem: Dr. Smith gets the technical details right and yet extrapolates from them a complete fallacy, writing “touchup and rework are all about deceiving the customer who, unwittingly, receives product with higher probability of premature failure.”

I am a former member of the IPC technical staff responsible for IPC-A-610 and J-STD-001. Having spent many a weekend in J-STD-001 meetings, I can state from experience that many defense contractors pushed to ease certain requirements in order both to save money and improve reliability. In one instance that springs to mind, Boeing provided ample evidence that minimum hole fill could be reduced because, they found, although a higher percentage of hole fill was seen as more reliable, in practice inspectors would have the rework technicians hit nonconforming holes with the solder gun, and the additional temperature excursion *reduced* long-term reliability more so than the greater volume of solder in the hole could increase it. These types of discussions don’t show up in the final boxscore, but you can’t understand the outcome of the game without knowing them. If Dr. Smith hasn’t been able to “unearth the data” behind the standards, it is because he hasn’t attended the meetings.

He also takes aim at the American industry for ignoring the teaching of the great quality gurus. “Instead of the focus on results emphasized by Deming and Juran, industry has embraced paperwork bureaucracy.” In fact, Dr. Deming focused on process, with the idea being a perfect process would net perfect results, and his “knowledge of vriation” concept runs through J-STD-001. At its core, J-STD-001 is a process driven document; a company that doesn’t understand SPC and process deviations has no hope of properly instituting it.

This all indirectly raises a separate point, however, namely: that it is critical for the US to maintain control of the standards. As my old friend Dieter Bergman used to tell me, he who controls the minutes controls the meeting. By authoring the standards (and making sure that the key Western OEMs are active contributors), the US can ensure a place at the international table far superior to the one our depleted manufacturing base would otherwise allow.

Time to Co-Opt Co-Design?

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In recent conversations, I’m hearing designers say they are spending enormous amounts of time in meetings. These comments tend to come from folks who work for larger OEMs or ODMs and work on teams spread around the globe.

Certainly there is something appealing to upper management about follow-the-sun design. It maximizes time resources and leverages both the lower labor cost regions of the Pacific Rim and the experienced hands in the West.

But whereas the old model of vertically oriented design and manufacturing had its warts, if designers are getting hung up all day in meetings, as opposed to spending time routing boards, one begins to wonder whether the follow-the-sun model has been taken too far. There’s nothing process-oriented about commiserating with a manufacturing engineer over lunch in the cafeteria, but there is something to be said for being able to talk things over as they occur, rather than being holed up in never-ending CYA sessions.

Is round-the-clock design actually a drag on efficiency and productivity?

Spring Bored

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To those who are tiring of this spring’s back-and-forth between Mentor Graphics and its two largest shareholders, take note: It should only last about three more weeks.

On May 12, the EDA company will hold its annual meeting, at which time shareholders either will affirm their  faith in management by re-electing the current directors, or will try to grab gold via a different channel by voting in favor of dissident shareholder Carl Icahn’s alternate slate.

Icahn and some other investors have claimed, in no uncertain terms, that they feel Mentor spends too much money on itself and not enough flows back to the shareholders. They believe the design software company would be better off run by a group with a greater stake in the outcome — no current Mentor director holds more than a 0.5% share, while Icahn controls nearly 15%. “Over the past 19 years under current management, Mentor’s share price is down 18%, with zero return for shareholders,” Casablanca Capital, another dissident shareholder, wrote in a letter today. “How can we support a board that is responsible for this underperformance?”

For its part, Mentor today responded with its strongest rebuttal yet, saying that Icahn has no plan, short of selling the company, a move it says would jeopardize customer stability; overrates his own nominees’ qualifications; and distorts Mentor’s track record. Mentor further argues that its stock has beaten that of its main rivals over the past five years.

While the battle has been mostly confined to the boardroom — Mentor’s stock price hasn’t yo-yo’d much since Icahn made a $17 per share offer for the company in February — it’s hard to believe that the potential of new management hasn’t been an ongoing distraction to the company’s thousands of employees. They, too, are likely eager for some relief.

It also should be noted that the two investors that are calling for the board’s heads — Icahn and Casablana — own a little more than 20% of the company. The other 79%+ of voting stockholders have been quiet throughout this tennis match. They are the ones who will decide Mentor’s fate, however. At this point, the company is in their hands.

Sunstone’s ‘Fab’ Design Tool

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Sunstone is again acting as much like a software company as it is a quickturn PCB fabricator.

The board shop, which over the past few years has developed and honed its free CAD/DfM tool known as PCB123, today rolled out a conversion tool that features native file upload functionality.

In short, customers no longer need to export data in Gerber; instead, they can use one of a series of native data formats, including Altium, Eagle, OrCad, NI, and others (including, of course, PCB123).

It’s the second big development by the PCB maker in the past year, having already rolled out a parts library addition to PCB123 that supports some 500,000 components.

PCB123 won’t replace the big ticket CAD suites, of course, but for the types of prototype boards most designers need, it keeps getting better and better. And with its CAD conversion capability, Sunstone further extends its “ease” factor to those who don’t use the company’s own software.

Loss of a Legend

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Werner Engelmaier, a man I have known for 20 years, died Friday on a trip to Jordan.

News of his passing stunned and saddened me. Werner was a force: a man of unmistakable integrity, commitment, intelligence and fearlessness.

Werner had attained guru status before I even had entered the industry. In the mid 1990s, while on the technical staff at IPC, I often was left with a long list of faxed questions (you read that right: our boss at the time didn’t like phone calls from those pesky customers) from process engineers mystified by one specification or another. Werner became one of my go-to guys, and always took the time to explain the thinking behind the standards. Who knows how many engineers thought I knew what I was talking about when in fact, I was simply quoting Werner.

Appreciating for years his passion for skiing — Werner would often take advantage of flights from his Florida home to the West Coast by stopping off at one of his favorite mountains — I once mentioned how much I liked the Snowbird resort outside Salt Lake City. Werner laughed, and said he preferred a nearby peak, adding he had a saying, “I ski Alta, and I give you the ‘Bird’ ” a tongue-in-cheek reference to the one-finger salute.

That was Werner. He had his opinions — be it Alloy 42 or lead-free soldering — and stuck to them, insisting on data above politics and the path of least resistance. He was patient and respectful, but he carried that trait to which all journalists aspire: He spoke truth to power.

And, as his son Peter said, he was “reliable” in every sense of the word. It was strange not seeing Werner at IPC Apex last week. It was the first time I can remember him missing an IPC meeting (and I know why he did, although I’m not going to write it here). Instead, he gave a two-day seminar in Israel, then flew to Aqaba, Jordan, to go scuba diving. In his absence, he still received a pair of awards for work on newly released IPC standards.

I will miss a lot of things about Werner: his sense of humor and smile, his tenacity, his mind. But mostly, I will just miss him.