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Nolan’s Notes: The Shifting Supply Chain—An Argument for Investment

The gears of the economy worked like clockwork for quite a long time, at least in North America, Europe, and Asia. Overall, that smooth operation is no longer the case, for several reasons. It’s as if the watchmaker has upended the clockworks onto the worktable and is rearranging the mechanism to work differently—to tell a different time, if you will.

In the overall economy, there are bearish signs (9.1% inflation year-over-year in the U.S. in mid-July). But in electronics manufacturing, the market looks quite bullish on the demand side. This month’s cover reflects that dynamic—a bullish industry within what seems to be an emerging bearish economy.

Recently, I had the opportunity to tour seven San Jose-area EMS providers. At each facility, I would ask, “How’s business?” The answer was always the same: “Very good, when we can get components.” The supply chain, I was frequently told, is a continuing stressor. Materials can be difficult to procure for PCB fab as well. Talking to fabricators, the general answer to my question was, “Sales are good, our order backlog just keeps extending. It’s staffing that’s throttling us.”

In a separate conversation recently, a fabrication industry insider said, “We hire someone, train them, and they jump ship for the grocery store down the street because they’re paying $2/hour more than we can afford. It’s hard to keep our people.”

More than once as we put this issue together, one source would refer to the book, The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America by David Gelles, and draw parallels between Welch's approach and what happened in PCB fab: By reducing (eliminating?) R&D, and throttling the investment in new processes, the U.S. lost its competitive edge and over-optimized the supply chain. Twenty years ago, Welch’s approach was embraced; in today’s market, it would seem, not so much. While I’m just beginning to investigate the ideas in Gelles’ book for myself, there are people in the U.S. industry now considering how to undo Welch’s legacy.

One might consider the U.S. CHIPS Act, which has been in the global news, an example of taking action to reverse Welch’s mark. And right behind the CHIPS Act is HR 7677, the Supporting American Printed Circuit Boards (SAPCB) Act. There’s never been a time when PCB fabrication has held such a high profile on the economic stage. Now seems a good time to remind ourselves of the ancient proverb found in multiple cultures, “In chaos, there is opportunity.”

For the July 2022 issue of PCB007 Magazine, we asked that in these times of change, whether now is a good time to invest in PCB fabrication. Well, if I’m completely honest, our initial thought was, “If you think it’s been bad so far, just wait for Q4!” As we took that question to our expert sources, the response was two-part: Supply chain woes are going to continue; but now is a good time to invest in upgrading fab facilities. At least, that seems to be the news outside Asia.

IPC Chief Economist Shawn Dubravac sat for an interview wherein he looked forward into Q4 2022 from a macro level. See what he had to say in “Q4 Concerns: Hold On to Your Hats.” Also at a high level, Pete Starkey reports on the Prismark presentation to the recent EIPC Technical Snapshot, as delivered by Dr. Shiuh-Kao Chiang, managing partner at Prismark Partners. The outlook in Asia, says Dr. Chiang, is going to be challenging. His theme: “The party’s over.”

To help you better follow the developments of the CHIPS Act and the SAPCB Act, and with the help of the PCBAA, we’re proud to bring you an interview with HR 7677 co-sponsor, U.S. Rep. Blake Moore, R-Utah, and PCBAA president Travis Kelly. They detail the bill and their expectations of the effect it will have on PCB fabrication. Originally, the bill brought two levers to move the industry: a pool of funding for PCB manufacturing competitive development, and a 25% tax credit for purchasers of U.S. manufactured printed circuit boards. On July 8, just after we conducted the interview, the tax credit was removed from the bill through amendment. The original interview has been edited to reflect that recent change.

To continue our examination of legislative activity, we interviewed Christopher Peters of USPAE, another association advocating for support from Capitol Hill. He takes a deeper look at the CHIPS Act and is potential impact on investment. Finally, to round out our coverage on this topic, Dr. John Mitchell, president and CEO of IPC, asks, “Is the U.S. Government Ready to Meet the Test of Technological Leadership?”

To complement our legislative coverage, we spoke with M&A experts inside the industry to gain a sense for how investment might manifest itself in this economic climate. Jeff De Serrano of PCB Technologies, and Tom Kastner of GP Ventures, shared valuable insights that we know will help you better understand what everyone is going through.

Of course, we also bring you a whole cadre of columnists this month: Page Fiet, Christopher Bonsell, Matt Stevenson, Happy Holden, and Mike Carano.

Our content is driven by your comments and feedback. We always welcome discussion about the content we publish, and your take on any industry topics you would like to see us cover. Our mission at I-Connect007 is to publish news and information that moves the conversation forward within the industry. It is our hope that the information in this issue will propel the industry’s reinvigoration by starting conversations within your company, and within the wider industry. Let us know what you think.

This column originally appeared in the July 2022 issue of PCB007 Magazine.