Category Archives: Hot Wires

Mike Buetow’s thoughts on the industry

Hitachi’s SMT Exit

Posted on by

And then there were … 27?

Hitachi’s board today announced plans to exit the SMT component placement business, selling off certain parts of the division and closing the rest. In a press release, the firm said it would transfer the sales organization to Yamaha and cease its development and manufacturing activities.

Japan has always been the major provider of the world’s component mounters, headed such major conglomerates as Fuji, Yamaha, Juki, Sony and Panasonic. And while Hitachi’s competitors will welcome one fewer player in the market, this in all likelihood won’t shake up the industry.

Over the years it’s been widely assumed consolidation was inevitable, yet it’s taken more than a decade since the Great Tech Recession of 2001-03 for any major moves to be made.

There have been several transactions and reshufflings, of course: ASM bought Siplace (Siemens), Universal was acquired by a private equity group, as was Assembleon. Mydata was acquired by a fellow Swedish OEM. And earlier this week Dima, a small European player, was snatched up by Nordson. None of these deals has truly changed the shape of the market.

In fact, the June 2013 merger of Juki and Sony was the first major deal in which a serious player ceased to exist. Hitachi’s will be the second.

The 27 (at least) remaining players will welcome the chance to grab Hitachi’s roughly $68 million in equipment sales now in play as result of this decision. Someone’s bottom line will look at least marginally better in the coming year. But more moves will be needed before the SMT market can truly regain the types of margins needed to inspire significant commitments to innovation that were standard fare in the 1990s.

 

 

 

Investigation at Fabrinet

Posted on by

Weirdness abounds at Fabrinet. Consider the following:

On Aug. 1, CEO David Mitchell sells 40,000 shares of company stock in a transaction valued at $734,000.

On Aug. 12, JDS Uniphase lowers its outlook, saying its current quarter sales will be as much as 8% lower than the consensus analyst forecast. JDS is Fabrinet’s largest customer, and one of two 10%-plus customers of the EMS firm.

Today Fabrinet announces it will postpone its fourth-quarter earnings release in the wake of an internal investigation into “certain accounting issues” uncovered by company management during its most recent fiscal quarter. The firm says it is also looking into whether there may be any “deficiencies” with its disclosure controls and procedures.

There’s no obvious straight line here. I’m hoping the timing of Mitchell’s transaction was just good luck, and that the investigation isn’t related to any insider shenanigans. Based on similar announcements from other industry companies, the investigation has something to do with the company’s inventory management. Such tightly sequenced events bear further watching, however.

 

Cisco’s Job Cuts

Posted on by

Cisco yesterday announced it an 8% cut to its workforce. Although the company did not say when the layoffs would occur, the suggestion is that some 6,500 workers will find themselves without a job at some point in the future.

Or will they?

The last time the networking giant announced layoffs was August 2013. At that time, it said it would pare 4,000 jobs from its global workforce of 75,049 workers. And just five months earlier, Cisco had indicated it would cut 500 other positions. Yet as of July 2014, the close of its 2014 fiscal year, the company had about 74,000 staffers worldwide. While numbers for its fiscal fourth quarter aren’t yet available, the firm cut just 1,200 jobs through the first three quarters of its fiscal 2014.

Even accounting for open jobs that Cisco may have decided not to fill and offsets from acquisitions, the number of announced layoffs do not seem to match — that is, fall well short of — what Cisco says it will eliminate.

This is a trend.

As of July 2012, Cisco employed 66,639 workers. That month, it said it would cut 1,300 jobs. A year later its headcount had increased by more than 8,400 workers.

Even the last major bloodletting wasn’t as, well, bloody as predicted. In July 2011 Cisco announced it would ax 6,500 jobs, or 9% of its 71,825-man staff. A year later the headcount stood at 5,186 less, a significant number to be sure, but not as bad as what was forecast.

I’m not suggesting Cisco is being intentionally disingenuous about its plans. Certainly many companies respond to predicted downturns with layoffs, and perhaps in most of these cases business has been stronger than what was expected, thus sparing many people the ax. A cynic might say these moves are done less for the actual bottom line and more to pump up the stock price. So be it.  Nor is Cisco alone, for that matter. But it goes to show that job security, even in the volatile tech sector, is likely better than one would think from just reading the headlines.

 

How Far Should Sustainability ‘Standardization’ Go?

Posted on by

My longtime friend and industry colleague Pam Gordon blogged today about the role trade associations should play in driving the industry toward sustainability practices. In it, she writes

Associations will not necessarily push members to the next level of sustainability practices. But members can raise the baseline through their involvement and commitment — emphasizing that the industry’s continued profitability and continuity rests in good part on meeting customers’ increasing efficiency requirements, avoiding dependence on dwindling materials, and reducing costs through design-for-environment principles.

I agree with all that. But Gordon also mentions a colleague’s discussion of the possibility of trade groups offering certification in supply-chain sustainability, suggesting that those that do not are behind the curve. There, I’m very reluctant to concur.

I am a huge fan of standards, but I also recognize their limits. I view sustainability as an extension of innovation. And innovation is not something that can be standardized. Those companies that consistently adapt fastest to market demands are always the winners in the long run. I think the same will be true with design for recycling and reuse and other such initiatives. Companies will either pursue that course or not, but to add a layer of bureaucracy in the form of yet another pursuit of paper isn’t the way to go.

Pam writes that some associations help members raise their own sustainability goals above the level of current regulations by giving them workable frameworks, such as the codes of conduct from the Electronics Industry Citizenship Coalition. I have long felt the EICC’s code of conduct is a sham. Under Labor, for instance, the first rule is, “Participants are committed to uphold the human rights of workers, and to treat them with dignity and respect as understood by the international community.” Yet EICC members include Foxconn and Pegatron, which are routinely cited by watchdog groups for worker abuse. It may be a code, but its toothless.

Pam is tuned in to the industry and always makes her readers think. Her note that the industry lacks roadmaps for best practices in sustainability is dead on. A roadmap isn’t a certification, however, and that’s where I call on trade associations to draw the line.

Robots and the Law

Posted on by

In the April issue of PCD&F/CIRCUITS ASSEMBLY, I wrote about the need for a balance between autonomous machinery and human-operation equipment. I wrote the piece in the aftermath of the Malaysia Airlines Flight 370 disappearance, and referenced, among other things, the Toyota sudden unintended acceleration problems and the self-driving cars that are beginning to appear on US streets.

Seems I’m not the only one working their way through this. On May 5, a pair of researchers at the Brookings Institution began a series of papers (The Robots Are Coming: The Project On Civilian Robotics) that considers the legal ramifications of driverless cars.

That led me to Google, which uncovered a few more references to potential tort roadblocks.

While my work considered the technical and emotional issues that always factor into to any major technology shift, the legal aspects are equally in play here. For those interested in the subject, the Brookings Institution project is especially worth a read.

 

 

 

 

Could Foxconn Deal Bite Apple?

Posted on by

The notion that Foxconn might take a large stake in a major Taiwanese telecom equipment company poses a litany of interesting questions for its largest customer — Apple.

For example, Foxconn, which gets 40% of its revenue from Apple, could now be in position to become both a major Apple supplier and a major enabler, since millions of iPhones and iPads would conceivably be connected via Asia Pacific Telecom’s network. What influence could Foxconn thus have over Apple’s ability to operate in key Southeast Asia markets? Would it possibly seek to leverage that network by negotiating with Samsung to force better pricing from Apple? Will other major EMS/ODMs that play heavily in this space (Jabil, Pegatron, Compal, Wistron) follow Foxconn’s lead?

The EMS/ODM model continues to evolve. Foxconn seems intent on speeding that evolution ever faster.

 

 

 

A ‘Worthington’ Idea

Posted on by

EMS firm Worthington Assembly last week announced a deal to market its EMS services via CircuitHub.

WAI is a small EMS company located in Western Massachusetts. Like many in the sub-$20 million space, WAI’s owners double as its salesmen, and the firm relies heavily on word of mouth (and engineers changing jobs) for prospecting.

CircuitHub developed a universal parts library and is offering that, along with BoM, bare board and assembly quoting. PCD&F did a piece on the company last year.

Chris Denney, WAI’s CTO (and a sometime CIRCUITS ASSEMBLY columnist) explains the partnership here.

Clearly, more opportunities to order boards from a variety of suppliers via a single website are popping up, with the site typically offering free software in order to gain visitors (FabStream, for example, offers use of a PCB CAD tool capable of up to 12 layer boards, and SnapEDA offers simulation).

I would not anticipate larger EMS firms would go this route. But for smaller ones, whose cost of sales would be proportionally high relative to its income if it employed direct outside sales, using app-based vendors could be a creative and low-cost way to find new customers.

Quiet Flight

Posted on by

The mystery over the whereabouts of Malaysian Airlines Flight MH370 is a very serious and tragic matter. That the 777 was equipped with sophisticated tracking devices and could still disappear confounds me.

Let’s assume the pilots turned off the transponder. This is a serious question: Why are the transponders manually operable? Is there any value to a commercial pilot or navigator being able to “go silent?”

Perhaps there is, but I don’t see it.

 

M&A is Here to Stay

Posted on by

There’s been a flurry of EMS acquisition activity of late, with Natel’s acquisition of EPIC Technologies and Benchmark’s pickup of Suntron and CTS among the larger deals. Lincoln International, an M&A advisor, counts nine transactions in the fourth quarter alone, out of 24 total for the year. While Lincoln’s numbers shouldn’t be considered absolute – my guess is that worldwide they are off by well over 50% – they do provide a reasonable snapshot of the industry at a given time.

While I dare say Nam Tai will be the largest EMS company to close its doors in 2014, when all is said and done, I predict we will see a record number of shops close or be bought out in asset deals.

What Does New CEO for Microsoft Mean for Hardware?

Posted on by

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.