Category Archives: Weiner’s World

Industry veteran Gene Weiner gives his perspective on the happenings and history of the electronics and printed circuit board industries.

Onshoring

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Onshoring has become the word of the moment, the expression of hope, the exposure of wishful thinking to those who try to intepret relatively small onshoring activities as major moves for job and economic recovery.

Flextronics CEO Mike McNamara pointed out in an interview with Larry Dignan of ZDNet, “As you see things that get pushed back into the US, “a la” the (recent) Apple comment it is more than just having the right cost structure. You also have to design for more automation and more different kinds of productivity. So, it is an evolution; it is not just flipping a switch. You actually have to spend a lot of work in the design, all the way through to the manufacturing process, knowing where you are going to manufacture. I think it is going to take time.”

It will not only take time, it will take incentives from the government. If Taiwan can do it, why can’t America do it? A major lure could be the lowering of one of the world’s highest corporate tax rates. Another would be to remove or simplify many of the “make-do” reporting procedures and requirements that seem to do nothing but tie a company’s hands, increase costs, and create more public sector jobs.

Taiwan’s new reinvestment incentives began last month, with an aggressive goal of more than doubling the returning investment from overseas Taiwanese businesses to $6.89 billion over the next two years. Companies need to meet certain requirements, such as producing critical components or marketing products under their own brand. Taiwan’s government announced on Dec. 6 that Catcher Technology and Largan Precision will invest in new factories in Taiwan that will create some 3,800 jobs over the next few years.

Foxconn Moves Intriguing

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There is a lot of speculation regarding Apple’s stated intent to build a manufacturing site in the US. This is not a major move. Only 200 jobs will be created. I cannot help but wonder if this is related to Foxconn’s (Apple’s major supply-chain device manufacturer) recent offer to help train Americans in manufacturing technologies. Is there a greater strategy about to be implemented? Is it the precursor to a potentially much larger move as costs continue to rise in China? America is still the major market for Apple where new products are introduced. Do Tim Cook and Terry Gou have a larger strategic plan? As Sherlock might say to Watson, “Methinks a new game is afoot.”

The November contraction of the US manufacturing sector does not bode well for the domestic electronics industry. According to the Institute for Supply Management (ISM), the index declined to the lowest level in three years, as national factory activity fell to 49.5% in November from 51.7% in October. Expectations had been for a level of 51.3%. Levels below 50% indicate a contraction. These figures are reflected in recent IPC book-to-bill ratios. The news in Japan is also discouraging for that nation’s interconnect industries. The Japanese Ministry of Economy, Trade and Industry showed negative growth for the country’s electronic industry in September. Not only is board production dropping, but so are board prices. Panasonic and Sharp have lost market share and are experiencing heavy losses, according to DKN Research. JX Nippon Oil & Energy (a major metal and oil supplier) has decided to close its PV silicon wafer business due to extreme global price competition. Uncertainty seems to reign everywhere. Many strategists are now working on improving efficiencies, finding new markets, and a resumption of growth in 2013.

For Americans, too? More cooperative activities reducing redundancy is needed between the IPC and the EIPC.

The EIPC made following announcement on Dec. 3: The EIPC has made an effort to provide the latest information on Standards for PCBs from Japan. The 4th edition was released at the JPCA Show in June 2011. The EIPC is encouraging the specialists in the European Electronic Industry to learn the knowledge that has been accumulated by the Japan Electronics Packaging and Circuits Association (JPCA) and documented in the Standard on Device Embedded Substrate Terminology Reliability Test/Design Guide Edition 4.0- JPCA-EB01 (2011) The English version of the document is on stock at the EIPC office in Maastricht, The Netherlands.

US Commitments

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When I heard early this month that Foxconn (Hon Hai) chief Terry Gou offered to train Americans in electronic manufacturing I recalled one of Apple’s excuses for putting its production in Asia, much of which went to Foxconn which now has over a million workers. Apple stated that America just did not have a sufficient number of qualified and trained technicians and engineers (tens of thousands Apple said) available to build its products here.

Then I thought, why would Gou make this offer? He certainly has not shown himself to be a good Samaritan in the past. The only conclusion I could reach was that he was planning to establish assembly operations in the US and would need a qualified work force to achieve this. Note that production of iPad minis are behind schedule and market demand. Labor costs have risen rapidly and continually in the PRC over the past five years. Hon Hai has been plagued with labor problems and a high factory worker suicide rate in China during the past few years. Gou reportedly is reported to be conducting evaluations in cities such as Detroit and Los Angeles where there is a large available labor pool. It should be noted that Foxconn has debunked the stories associated with the possible establishment of a US manufacturing base. But then, is it possible that Mr. Gou has become a good Samaritan when it comes to helping the US’s manufacturing capabilities?

Meanwhile, Gou, at a recent public event, noted that the company is planning a training program for US-based engineers, bringing them to Taiwan or China to gain first hand experience in the processes of learning product design and manufacturing. He has already been in touch with MIT regarding the program. They will also be in an environment to learn Chinese.

All this begs the question: Where are the American companies, government agencies, and elected officials that claim that they want to bring manufacturing jobs back to the US? Where is the commitment? Where is the investment? What steps are being taken to entice American manufacturers to the table? What motivation is being offered? If a foreign company can find it attractive to do so, why can’t an American company find it so, too? Even more interesting is the question, “What is the U.S. government doing to keep its current manufacturing base viable and growing?”

Is Japan’s interconnect future on shaky ground? Third-quarter results from Taiwan’s leading board makers (suppliers to Apple, automotive companies, and tablet makers) indicate that the center of HDI manufacturing has already undergone a major shift from Japan toward Taiwan and China. Taiwan’s government has been extremely supportive of this and other high-tech activities and investment by its “native” electronic (and other) companies.

“Rumors” persist that Taiyo is attempting to buy Goo Chemical in Japan. Goo owns 51% of OTC, Taiyo’s leading solder mask competitor in greater China.

Associations in Agreement

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Taiwan’s Vice President Wu (tallest man, center of photo) welcomed visitors and took part in the ribbon-cutting ceremony for the TPCA Show held in conjunction with the IMPACT 2012 event in Taipei. Second from the right is IPC CEO and president John Mitchell.

The TPCA and the JPCA signed a Memorandum of Understanding at the Taipei Nangang Exhibition Center on Oct. 25 to highlight industrial cooperation in a practical and efficient way. The TPCA organized an Alliance Seminar held in conjunction with the endorsement. This followed the Advance Technology Forum alliance event of this past July. The activity is supported by Taiwan’s Economic Department. Approval of funding was announced after the signing.

IMPACT 2012 was jointly organized by IEEE CPMT-Taipei, iMAPS-Taiwan, ITRI and the TPCA, and co-organized by IDB-Ministry of Economic Affairs, I-Shou University, NanKang IC Design Incubation Center. SMTA, and TTMA. IMPACT (International Microsystems, Packagiing, Assembly and Circuits Technology Conference) attracted 190 papers from 14 countries.

The TPCA held a special breakfast presentation in which an update on the industry in Japan (PCB domestic production down 45+% from its peak in 2007 as offshore manufacturing increased) by Dr. Hayao Nakahara of NTI and the industry status in Thailand presented by Bancha Ongkosit, chairman and managing director of KCE Electronics. The latter stated that Thailand lacks supply chain infrastructure and that he no longer buys from the US. He pointed out the growth of automotive electronics, stating that virtually every major car company as set up there, and that Thailand exports about 3.5 million vehicles per year. He also stated that the growth of organic substrate replacement for ceramic based electronic circuits for vehicles will continue to increase rapidly.

America’s Interdyne Systems, a new fabrication equipment entry debuted its revolutionary new concept for the mechanical drilling of 75 micron holes. Taiwan Kong King (TKK) celebrated its 35th Anniversary at the show.

It’s a Collaborative World After All
Rumors persist that an announcement of a new collaborative activity between the IPC and iNEMI is imminent.

Lenovo, the world’s second largest PC producer, will start production of its Think brand notebooks in the US next year at its fulfillment center in North Carolina. Lenovo acquired IBM’s PC division (original producer of the Think PC) in 2005. Last month Lenovo announced the acquisition of Brazil’s PC maker Comercio de Component Electronicos.

Taiwan’s intelligence chief warned that one in every three Taiwanese companies based on the mainland are facing closure due to rapidly falling profits, according to Agence France-Presse in Taipei. Another 30% are also reported to be struggling on the mainland. Last year the island’s authorities approved 575 mainland investments totaling $13.1 billion.

Rebuilding Bridges While Breaking New Ground

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The announcement of cooperative activities in their fall programs by the IPC and the SMTA is hopefully just a forerunner of things to come under the leadership of the IPC’s new president John Mitchell. It was an excellent first step in repairing the damaged relationships between the two organizations. This was followed by the news release that the two organizations will continue to partner by hosting a High Reliability Cleaning and Conformal Coating Conference Nov. 13-15 at the Crowne Plaza Hotel-O’Hare in Chicago.

The revitalization of the IPC has become evident with the declaration of its inaugural IPC Electronic System Technologies Conference, to be held in Las Vegas May 20-23, 2013. The event will bring together the entire electronics industry — from printed board materials to component packaging and semiconductor design to complete systems. Interesting thoughts. Dr.Senol Pekin, Intel Corporation, will be general chair of the event.

We learned of further signs of consolidation, shifting in manufacturing bases, and cooperative activities while attending the TPCA-IMPACT event in Taipei October 24-26. The new MOU between the JPCA and TPCA will provide booth space for TPCA members at the JPCA show at JPCA member prices as part of a new reciprocal relationship.

ITRI continues to work with domestic companies in the development of new processes and materials to meet the REAL impending roadmap requirements of 10, 15 and 30 micron lines and spaces for oncoming 3D and other packages.

In general, bare board production remained at a depressed level in China while continuing to decline in Japan. Nan Ya Plastics spoke of copper-clad laminate sales of “about 25% less” than last year. Japan was reported to be no longer the dominant source of flip chip MLBs or MLB-flex circuits. Taiwan owned fabricators (in Taiwan and on the mainland) were forecast to become #1 in the manufacture of microvias in 2013. Japan’s Cu-clad laminate production in 2011 was stated to be only 50% of that of 2000 (in square meters).

Chinese mobs attacked 100 Japanese factories due to the squabble between Japan and China over the Diaoyu Islands which were returned to Japan by the U.S. after World War II. It is still a “ticking time bomb” according to China. The United States has stated that in the event of conflict, the islands are covered by the mutual defense treaty between Washington and Tokyo. The chairman of Panasonic recently visited its still inoperative Chinese factory damaged by the recent attacks. Japan’s industry is now actively seeking “other locations” for its present and future “offshore” manufacturing sites. The Philippines will most likely be one of the beneficiaries of these recent events and flare-ups.

China’s customs departments are “delaying” the processing, inspection,  and clearing for delivery imported equipment and spare parts from Japan. This negatively affects Chinese as well as Japanese and other companies operating on the mainland.

We saw few, very few, Westerners at the TPCA show as many companies discussed the new technologies and accelerating growth and conversion of automotive electronics from ceramics to high temperature epoxies (organic substrates) – from China and Taiwan to Thailand. We wonder how this meshes with the stated wishful thinking of Americans talking about reshoring production. It is evident to us that without major investment in facilities and technology to actually produce parts there will be little reshoring of note. America has not yet begun to do what is necessary to compete in the next electronic interconnect arena.

KCE Chairman Ongkosit said that there is high local PWB demand in Thailand for automotive and other applications. He also iterated that Japan is building a lot of factories there. He stated that the U.S. “is gone” as a supplier to Thailand’s electronic industry. He bemoaned the lack of after sales service and the difficulty of obtaining new materials there. KCE has had to train its own employees to provide the services normally expected of  suppliers – but the pipeline difficulties (and opportunities) still exist. He explained that Thailand is at the hub of the ASEAN market and offers great opportunities for those wishing to set up there.

Ongkosit stated that the country’s Board of Investment offers 8 years tax credits to new ventures there. It also does not tax imported materials used in production.

Wondering. Why has Foxconn backed down from its highly publicized commitment to build a fully automated factory? Was it concerned about further labor unrest? Did the threat of losing some of Apple’s business to a different EMS company stall the plans? Has the slowdown in China’s rate of increase in its GNP give it pause? What do you think?

Troubled Waters Ahead

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Disputes between China and Japan over ownership of several small islets, known as Senkaku in Japan and Diaoyu in China,  are increasing and threatening to draw the U.S. into a potential fire-fight and conflict between 2 of the world’s top 3 economies. Violent anti-Japan protests this past week are threatening the $300 billion annual economic ties between the two nations. A wide range of firms from electronics giants Sony and Panasonic to Japan’s big three carmakers — Toyota, Honda and Nissan — temporarily halted production at some or all of their China-based plants.

Japanese electronics (and other) manufacturers are reported to be making a beeline to the Philippines. These include Furukawa Electric, Murata Manufacturing, and Brother Industries. The Philippine’s Trade and Industry Undersecretary Cristino Panlilio stated that the government is also soliciting suppliers of these Japanese companies in order to nurture local supply chains.

Job creation. Foxconn’s newly announced venture near Sao Paulo, Brazil, is expected to create tens of thousands of jobs by 2016. One has to wonder whether Americans or Europeans will provide the basis of their necessary supply chain needed for the announced board, part, and device production. Or, will a new “home grown” series of material and specialty chemical suppliers be the end result? Will production assembly equipment come from Europe? America, China, or Asia? The numbers will be big!

Samsung toeing the mark? Following its recent loss IP suit loss to Apple, Samsung announced that it would audit working conditions at 249 Chinese subcontractors and suppliers, including 105 that produce goods solely for Samsung. This major decision, coupled with Apple’s main provider Hon Hai’s (Foxconn Technology Group) decision to tackle working condition violations among its 1.2 million workers assembling iPhones and iPads, are certain to change the way that Western and other “foreign” companies do business in China. Samsung stated that it would terminate contracts with suppliers that do not take corrective actions when found and notified of violations of Samsung’s labor and working condition policies.

Cause for Pause

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India’s third major grid loss in a short period this month has left 600 million without train service, running water and electricity to operate A/C systems or even factories. One must wonder how carefully OEM, EMS, and fabricators evaluate infrastructure when seeking the “lowest cost” for production sites. I can clearly remember the chairman of an EMS client company pass on India for just this reason. His concern was that of potential component supply chain problems due to lack of sufficient local infrastructure as well as a dearth of sufficient local volume inventories and JIT deliveries capabilities for the hundreds of different components used each day.

Offshoring lesson learned: The lowest cost of labor or factory construction is not necessarily the lowest, best, or most reliable source for manufacturing products in the global marketplace.

A recycled idea

Some first-tier Taiwanese motherboard players are reported to be cooperating with second-tier players to jointly purchase components to lower their costs and counter rising raw material and labor expenses.

Weak global PC demand, rising costs for key components such as PCBs and IC chips, as well as increasing wages in China are all impacting motherboard makers’ profitability.
With the cooperation on component purchasing, sources believe that the players will be able to save an additional 5%, as costs for IC chips to see significant drops.
DigiTimes reports that the joint purchasing is mainly handled by the first-tier motherboard players with volumes of each order to be at least one million units. After acquiring better prices, the first-tier players then re-sell the components to their partnered second-tier players.

We tried a similar program in the US with board fabricators (modeled after a “neutral” buyer’s co-op) a few years ago, but could not overcome the lack of trust between potential participants.

Change

We need a radical change to ensure the future of our electronics industry – and our nation. The president of a leading electronics trade association said that he noticed a domestic dearth of young people in the association as well as in our industry. He asked if I noticed this and had any ideas as to how to attract young engineers and scientists to our field.

The timing of this discussion was amazing. Just a few days later there was a news story in the Washington Post about education citing the fact that 1 in 4 college students in South Korea are engineering majors versus 1 in 20 in the US. Korea also has tough national standards in their public schools. We have regional, uncoordinated standards. According to the Post, South Korea also far outpaces the United States in the percentage of young adults with college degrees—63 versus 41%—and its K-12 students routinely outperform US children on international assessments.

Do you have any ideas as to how to solve this problem and arrest the decline in our electronics industry? Short term? Long term? Please send your comments and ideas to me at [email protected]