Category Archives: Hot Wires

Mike Buetow’s thoughts on the industry

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?

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?

 

Brazilian Blowup?

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Which way is Brazil headed?

It looked up, after Foxconn decided to invest — how much is the subject of much speculation, as one report pegs it at about $500 million, another at as much as $12 billion — in new manufacturing campuses in São Paulo and elsewhere.

But Multek recently bailed, leaving the country without its largest bare board fabricator, and now Benchmark is leaving too, citing customers that were “challenged by some of the regulation challenges there.”

Brazil has eased some of its notoriously rigid (and expense) laws that taxed imports, rules designed at essentially forcing companies to build their supply chains inside the nation. It’s a tremendous potential market, with nearly 200 million residents. A few companies leaving isn’t necessarily a trend. But the flow always starts with a trickle.

 

 

 

Slow Train a Comin’

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Where are the next generation of good engineers going to come from?

If I had a nickel for every time I’ve been asked this …. well, you can do the math.

A good friend asked me this just today. He has noticed many of the 25 to 45 year old engineers have left the SMT industry, and questioned where the new ones would come from.

My response: The same place they always have — they will be poached from other companies, or trained in house.

Twenty years ago, we had the same problems we face today regarding the availability of qualified process engineers. But we looked at it differently. Then, with the industry in its relative infancy and growing 15 to 30% per year, we accepted that hiring novice engineers and training them was simply part of the cost of doing business. Somewhere along the line (get it?) the mindset changed. We started to expect that experienced yet affordable engineers would always be available, and when they weren’t — especially after the tech meltdown, when many left for greener, less cyclical pastures — we as an industry went into a collective mode of “woe is us.”

What we forgot, however, is that the electronics industry has traditionally been self-reliant. We don’t need universities to send us mechanical and industrial engineers ready minted and prepared for action. We need to get back to recognizing that every industry has its learning curve, and we need look no further than ourselves for the solution.

It’s time to stop worrying about the next-generation of engineers and get back in the business of recruiting, mentoring and shaping the orbs as they exit college, engineering degrees in hand, into insightful and careful process engineers.

Companies that do well in this regard will have a competitive advantage over those that don’t.

And if we are lucky, we may just learn something along the way.