US Commitments

Posted on November 14, 2012 by Gene

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.

Bragging Rights

Posted on October 10, 2012 by Mike

I want to call attention today to a great new contest for designers being run by Sunstone Circuits.

The contest works like this: From now until Dec. 16, design engineers can share their PCB-related design success stories online at Sunstone’s website.

Friends and others to the site can vote for the best project. All entrants and voters are entered into a sweepstakes to win a series of prizes, ranging from gift cards to an iPad.

It’s a great way for designers talk (and yes, perhaps, brag) a bit about what they do. And while Sunstone certainly benefits from the exposure, I’m glad to see a company taking steps to highlight the remarkable things designers can do.

Troubled Waters Ahead

Posted on October 5, 2012 by Gene

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.

What Should HP Do?

Posted on October 4, 2012 by Mike

The news out of Palo Alto isn’t good.

Now, that won’t exactly come as a shock to most observers, as HP has been flat for some time. But CEO Meg Whitman yesterday acknowledged that the pain will intensify before the patient recovers, telling analysts that revenues would fall 11 to 13% over the next fiscal year.

In real dollars, that’s a drop of up to $16.5 billion, roughly the size of Jabil Circuit, or, the companies ranked No. 15 to 50 on the CIRCUITS ASSEMBLY Top 50.

Worse, Whitman said not to expect a turnaround before 2016.

Give Whitman credit for honesty, although keep in mind that, by setting the bar low, she raises the prospects for future knighthood should HP’s recovery come faster.

But what Whitman did not disclose is what, exactly, HP’s prescription for saving itself is. In all likelihood, that strategy will focus on paring of the company’s core product lines — servers, PCs and printer. Perhaps it will follow IBM’s lead and sell or spin off its PC unit, an idea that the company itself has floated in the past.

It says here, however, the company HP should be emulating is Apple. HP once was as respected as any business in the tech industry, admired for its stable and forward-thinking leadership, its commitment to research and development, and a manufacturer of the top rank. Today, that path is more remembrance than reality. The company has long since moved away from its manufacturing roots, outsourcing almost anything it could. (Foxconn has been a major beneficiary.) What HP, along with Dell and many of the other big PC makers, is learning the hard way is, you give away the family jewels at your own peril. By offloading its fixed assets — and that includes its people — HP also gave away its competitive advantage. It’s become a parody of itself, a business confined to imitation, not innovation. Sure, HP has to retool, but it should do so by going back to its roots, much like Apple did when Steve Jobs was welcomed back after 11 years wandering the desert.

“Invent” was a favorite marketing campaign of HP. The company should practice what it preaches, bring design and manufacturing back in-house, and strive to be the technology leader it once was. It can be done. But HP has to be committed to the task.

No Rest for EMS

Posted on July 24, 2012 by Mike

Look out Apple — Foxconn is encroaching on your turf.

The company, which already boasts a chain of retail outlets, plans to expand into everything from software apps to a broadband satellite network. Much like Verizon, Comcast and others in the US, the EMS firm is working with local municipalities to build out the network.

Moreover, it has big plans to develop apps for smartphones, tablets and TV.

EMS companies don’t stand still. They can’t make money making solder joints. OEMs that want to protect their future should reconsider the extent to which they should be enabling their suppliers.

Apple: OEM Again?

Posted on July 11, 2012 by Mike

We tend to think of Apple the company as a design innovator and a great marketer. What we don’t think of Apple as is a manufacturer.

We should.

Per its 10-K, Apple ran up a tab of some $4.6 billion in capital expenditures in 2011, of which no less than $4 billion was for manufacturing and tooling. Keep in mind that this is a company that has no manufacturing facilities.

Apple went from a traditional OEM to a design/marketing company to one that owns everything from chip design to effectively owning the plants that build its products. It’s an OEM again.

So sure, Apple and Foxconn are tied at the hip. But the 10-K gives us a better glimpse as to why: Apple owns the lines. It’s one thing to move a program. It’s another to replace a factory, especially one with a hundred thousand workers.

Apple is the most valuable company in the world. It dominates its supply chain like no other. Sooner or later, the rest of the industry will copy its methods. The OEM as manufacturer will be back in vogue.

Litigation: The Next Killer Ap?

Posted on July 5, 2012 by Mike

Apple v. Samsung.

Cisco v. Tivo.

The EU v. Intel.

The lawsuits are piling up as tech heavies line up against each other and, in some cases, nations or even larger economic blocs.

If you are a market share leader, fending off (or filing) lawsuits is routine.

Apple claimed a victory in the US, where courts have banned Samsung’s Nexus smartphone and Galaxy Tab 10.1 after Apple complained of patent infringement. But Apple’s record on (in?) its home court hasn’t extended abroad. British courts have ruled HTC’s mobile devices did not infringe four of Apple’s touchscreen patents, China courts found for a nearly bankrupt company that claimed ownership of the iPad trademark, and Italian regulators have opened hearings over the company’s failure to meet domestic warranty laws.

As companies sue and countersue over technology that becomes ever more complicated, not only are the courts tied up by the endless legal maneuvering, but company engineers get dragged into the fray as well.

So too, it should be mentioned, do governments. But while the US debates measures that would ramp its anti-counterfeiting laws, Europe is taking the opposite approach. The European Parliament yesterday overwhelmingly rejected adoption of the Anti-Counterfeiting Trade Agreement, siding with critics who claimed the bill put too much power in the hands of bureaucrats. “With companies trying to gain any advantage within a fiercely competitive landscape, an increasingly litigious environment seems to be becoming a reality most companies need to get comfortable with going forward,” opined Sherri Scribner, a senior analyst with Deutsche Bank.

Still, as tech companies rely as much on the courts as the computer to wage their market share wars, one wonders: Will the next generation of engineers be pressed into battle to design products … or defend them?

After the Product Build

Posted on May 30, 2012 by Mike

Some very interesting developments in after-market services these days.

One major player, Celestica, has been expanding its AMS for the past several years as it seeks higher margins. Higher-value services now represent roughly 5% of the company’s revenue, according to Deutsche Bank. (AMS in this case consists of everything from logistics to in and out of warranty repair.)

Skip Boothby, Celestica’s director of Global Services (which includes AMS), says they see two primary trends:

1. Postponement regional configure to order: Celestica sees order fill rates falling because the decision (forecast) is made too early in the product life cycle. The response is that the product is built to the lowest common denominator and shipped to a lower cost region where it is then built to order.

2. Direct order fulfillment: Here, Celestica sees product being built in a low cost region and shipped direct to the customer within a couple days. An example is Apple building PCs at Foxconn in China. The opportunity for the EMS is to add the transportation element which, if it can master, adds a new profit center.

Boothby says Celestica is trying to execute a “control tower” strategy whereby they oversee everything from rework/repair to logistics/reverse logistics to warranty and field service. He said their transportation management service is “very profitable” (but didn’t put a number on it).

They currently sell these services a la carte. They have considered developing a licensing arrangement or other pricing models. They want to make it affordable for startups and companies where their client relationship is in the “low millions.” This is just starting to be rolled out. The average AMS account is $7 million, all of which is value-added (labor, not materials). Most customers are not existing PCBA manufacturing customers. Most AMS work is one-off.

Boothby’s comments came during the Outsourcing Navigator Council meeting, produced by Charlie Barnhart Associates and hosted at Teradyne. If you’ve never attended one of these meetings (they host one or two a year), they really are very valuable, and draw a good cross-section of supply chain executives. I’ll have more on this shortly.

3 Thoughts on Foxconn

Posted on March 30, 2012 by Mike

A few thoughts on Foxconn in the wake of last night’s Fair Labor Association report:

1. Not that Mike Daisey feels much better today, but the excessive overtime was clearly way out of whack with Chinese law.

2. The FLA head was very clear in stating that Foxconn’s assembly lines are on par with any in the world. We knew that. There’s only so many placement machines and screen printers out there. Don’t let that obscure the larger picture, which was the dehumanization of employees. One quote that jumps out: “We’ve got to make sure people can opt out and if they do feel that they’ve suffered any kind of incriminations as a result, that they can complain, and that complaint will be handled fairly.”

3. The Electronic Industry Citizenship Coalition, which supposedly sets standards on how electronics OEMs should behave, has been fully exposed as being nothing more than a PR front.

Finally, you should read this piece from the Silicon Valley Mercury News that explains what the FLA is — including the main source of its funding.

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