Category Archives: Hot Wires

Mike Buetow’s thoughts on the industry

Component Manufacturability Index

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Screaming Circuits’ Manufacturability Index Ranks the difficulty of assembling a component. Index is one to five, with one being easiest, and five being the most complex

Sub index: a, b, c

a: Not a challenge within the number rank
b: Typical level of challenge within the number rank
c: Fits in the ranking, but likely needs special process, fixtures or attention

1. Just about anyone could hand-solder the part
Examples: Through-hole parts

2. Surface mount. Should be machine placed, but big enough to hand solder
Examples: 0805 or larger surface mount passives, SOIC packages

3. Pretty much any grade of surface mount equipment can handle this component
Examples: TSSOP or larger, 0.8mm pitch BGAs

4. Needs advanced automated assembly techniques
Examples: 0.4mm pitch BGAs or QFNs, CSP (chip scale package) or WSP (wafer scale package) BGAs, 0201 size passives, Package on Package (POP)

5. More or less R&D at this point. Few companies have or will assemble this part
Examples: 0.3mm pitch micro BGA, 1,700+ ball BGAs, 01005 passives

Just about everything 4b, and below are routinely within Screaming Circuits standard (guaranteed) process. 4c, 5a, 5b, 5c, are becoming more common here. These are special process (falling outside of our guarantee), but we can usually do a good job with them. You’ll need to speak with a manufacturing engineer before placing the order.

Duane Benson
A colossal negative space wedgie of great power coming right at us at warp speed
Readings are off the scale, captain

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Will ‘OnCore’ Deal Spur Encores?

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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.

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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

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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

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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

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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.

Should Flextronics Be Broken Up?

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The findings of a new study by Boston Consulting Group suggest that, over time, many tech companies are guilty of mission-creep, especially large ones.  And when that happens, those companies do not provide the shareholder value they could if they were leaner and more focused.

As part of its study, BCG analyzed total shareholder return, defined as the bottom-line return from capital gains and cash flow contribution. When it did so, it found little distinction between large-cap and small-cap companies:

“The clear takeaway is that regardless of company size, the more diverse the portfolio, the more difficult it is to generate high TSR—and the greater the set of management skills a company needs in order to handle that diversity. Companies must therefore be more deliberate and more explicit in rationalizing each element of their portfolio.”

BCG likens the strategy to the 3 R’s, in this case, Resize, Reform and Rejuvenate.  Marc Andreessen, the founder of Mosaic (later Netscape), put it this way: “If they’re more than 20 years old, then [companies will] probably benefit from being broken up, and many of them will probably be forced to break up if they don’t do it voluntarily.”

So for the EMS pseudo-conglomerates (Foxconn, Flextronics, Sanmina, etc.), what this means is there are arguments to be made — indeed, being made — that having bare boards, assemblies, design services, box build, ODM products, and a host of other products and services under a single umbrella is not an optimal  strategy.

There’s always been some debate over whether publicly traded EMS firms should be compared to other tech firms like Cisco and Microsoft or to traditional manufacturing companies (say, Caterpillar). It’s tough for a mid-size or larger contract manufacturer to attain repeated organic double-digit topline growth, and their margins are never going to be Wall Street pretty. Dumbing down the peer group makes sense.

But the bigger question being asked is whether their size is actually a hindrance. There must be a point at which that happens. Can the data analysis pinpoint that yet? And will market impatience make all of this moot?

 

Is Sharing for Suckers?

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In my January editorial I asked, “Absent a government-industry technical agency, is the US shooting itself in the foot?” My comments were made in response to a former Bell Labs researcher who wrote that the US should consider reestablishing a government-supported technology research center.

A couple days ago in the Boston Globe, MIT science historian Loren Graham, an expert on Russian technology, points to how scientists there have led the way in everything from electric lights to fracking to the laser, none of which they were able to commercialize and thus take advantage of domestically.

Graham points to many reasons for this, specifically the Russians lack of a robust legal, political and economic system that would provide the necessary infrastructure and protections. But interestingly, he is convinced that individual mores are also to blame, saying, “In the Russian scientific community, the belief that business is dirty. And that you should not demean yourself by stepping out of the world of ideas.”

Fascinating.

Some in the US are concerned that the pressure of competition might actually stymie ideas. It seems our counterparts in Russia may share those concerns.

2014: The Year of the Deal

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Today brings to an end one of the most fascinating years of acquisitions since the crazy Internet era of late 1990s and 2000.

Unlike that episode, however, 2014 was a much more orderly state of affairs, and while some of the deals were not foreseen, the pricing (and volume) were within the realm of reason.

To recap:

  • TTM Technologies announced it would buy Viasystems, bringing to a close one of the most talked-about chapters in PCB industry history. The deal has cleared all but the last few regulatory hurdles, and is expected to close in mid 2015.
  • Rogers will buy Arlon, merging two leading suppliers of high-frequency laminate materials, and perhaps further complicating the supply chain for some of the smaller fabricators that lack the purchasing power of the major players, not to mention consolidating the RF/microwave product supply base for the US Defense Department. Given its shoulder shrug of TTM’s Chinese ownership, will the DoD even bat an eye over this, or will it be concerned enough to throw a wrench in the deal?
  • On the assembly side, ASM purchased DEK, which had been readied for sale since late 2011. The acquisition gives ASM top-of-the-line print-to-placement equipment offerings and positions it to compete with the major Japanese players such as Panasonic, Yamaha, Juki and Fuji.
  • Nordson acquired Dima Group, stretching its traditional dispensing and, later, AOI and test focus into SMT placement. Will Nordson keep the pick-and-place lines, or package that unit up and sell it?
  • Likewise, Amtech Systems has a pending agreement to buy BTU, stretching its semiconductor and solar production focus to include SMT reflow.
  • And just yesterday Kulicke and Soffa made a deal to buy Assembleon for $98 million in cash. While Assembleon had been expected to be acquired since Philips first put it on the block several years ago, K&S’s entry into the printed circuit board equipment space was unforeseen. Does it plan to continue to roll up other companies (Speedline?) and build a worthy competitor to ASM?

Most of the major deals that took place in 2014 happened on the supplier side. Does that presage a similar consolidation on the manufacturing end in 2015? Will some of the units long-rumored to be in play (Multek, Hitachi) finally be consummated? Will EMS, which took a breather in 2014 after major deals involving Natel (Epic), Benchmark (Suntron, CTS) the year before, catch a new spark?

We can’t wait to find out. Happy New Year!

 

Higher (Cost) Education

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Rensselaer Polytechnic is an outstanding academic institution, one that has minted more than a few of the stellar engineers working in the electronics industry today.

And you can count me among those who believe that if we want to ensure that top minds continue to consider careers in academia, the pay scale needs to reflect such emphasis.

But the news that Rensselaer’s president received more than $7.1 million in total pay in 2012, according to The Chronicle of Higher Education’s annual pay survey leaves me stunned.

While it’s true Rensselaer president Shirley Ann Jackson has a stellar resume and much of her pay came via a $5.9 million retention incentive that kept her in place for 10 years, the incentive bonus coupled with her annual salary of $945,000 means the real cost came to  $1.5 million a year.

Rensselaer’s annual tuition cost: $46,700 per semester (not including room and board).

How many students do we discourage from or otherwise price out of the leading colleges each year? How many of those who do suck up and write the checks leave so encumbered by student loans that they end up on Wall Street or sales or some other non-engineering area where they can recoup their “investment?” And for good measure, let’s ask what is the mission of the university in the first place?