Weiner’s World

Estimated reading time: 11 minutes

Editor’s note: This blog was originally published in August 2016 at www.weiner-intl.com  and is being reprinted here with special permission from the author.

Re-Shoring

People in the printed circuit and electronic packaging industries often ask me about re-shoring. My response generally is that re-shoring is a myth. It seems that whenever I try to contact someone by email I get an automated response stating, "I am currently in China and will return to my office on…" Many of the facilities and much of the equipment that would be needed to re-shore have been auctioned off or sent to the scrap heap. Those who operated them have moved on to other jobs. Some have gone to work for Chinese companies. Further, re-shoring intimates bringing back something. However, technology does not stand still. Advances in fabrication processes and equipment require major expenditures to produce today's, and tomorrow's, products.

Major firms, such as Apple, have announced intentions to establish independent research facilities in China. Production often follows within the region of successful R&D. 

What seems to be occurring is not re-shoring but new activity to establish new companies, manufacturing operations and produce product—albeit on a very modest level. However, with a sluggish economy, high corporate taxes, and overly burdensome government regulations, few venture capital sources are available for such efforts—especially in the uncertainty promulgated by the current election year. In fact, affordable financing to modernize and upgrade America's smaller PCB enterprises is largely unavailable.

We must also consider the question posed by Andrew Strong, an associate director of Cambridge Consultants, when we think about reconstituting older manufacturing plants for potential re-shoring: "Repair, Replace or Re-Invent?" I would suggest, assuming that the products to be made have sufficient competitive market longevity, replace with improvements based on recent developments, automation, design changes, new materials, and Lean manufacturing principles—assuming sufficient financing is available.

Re-shoring continues to be a very "hot topic." A member of our 2,500+ LinkedIn network members wrote the following thought-provoking and incendiary comment:

"Re-shoring for electronics manufacturing doesn't make sense due to high levels of process automation, extensive and effective supply chain already established, end product unit value to weight ratio enabling low unit shipping cost, and relatively smooth global logistics.

The issues with establishing new manufacturing for other products in the USA are highest corporate tax rates, increasingly difficult regulatory positions discouraging small businesses and startups, government interference in attempting to ' pick winners,' and uncertainty about the sustainability and competitiveness of our free market capitalism as we continue to follow the European socialist countries into oblivion."

Another colleague of the past half-century sent an interesting response to the "silent complaint" story linking it to re-shoring. We posted it on our "Comments & Discussion" page.

What do YOU think? Do you wish to engage in this vital conversation? Should we redefine the challenge? Do you have a workable solution? Let us know!

Something to Watch!

The DoD is proposing to amend the Defense Federal Acquisition Regulation Supplement (DFARS) to implement a section of the National Defense Authorization Act for Fiscal Year 2016 that makes contractors and subcontractors subject to approval (as well as review and audit) by appropriate DoD officials when identifying a contractor-approved supplier of electronic parts.

Nano Dimension Ltd. announced that its wholly owned subsidiary, Nano Dimension Technologies, has supplied the first DragonFly 2020 system designated for 3D circuitry and PCBs. The system was delivered to a leading defense company in Israel for production evaluation purposes. To date, Nano Dimension has proven its capabilities of printing multilayer circuits only in lab conditions. We are tracking this carefully and expect a progress report on its performance at the Executive Forum presented by the IPC's Hall of Fame at IPC APEX EXPO in San Diego on February 13, 2017.

Cisco Systems says it will lay off 5,500 employees, or 7% of its 78,000 workers. The internet equipment maker is scrambling to adapt to technology changes that have reduced demand for its main products. This will most likely soon affect a number of its bare board suppliers in China. The reason for the reduction in force is that Cisco’s business has been negatively affected by the shift of its corporate customers to remote data centers for their computing needs instead of their own online networks.

…and you think that producing lines and spaces of 50 μm is difficult?

Germany’s Heidleberg Instruments' µPG system is a micro pattern generator for direct writing (DWL) applications and low-volume mask making in the IC industry. It can generate feature sizes 500 nm (that’s 0.02 mil or 0.5 µm) on photomasks. (However, please note MACRO is NOT always easier than MICRO!)

In the EMS world

Second quarter M&A announcements included: §PARPRO Corporation acquired Cal Quality Electronics; Tekmart Integrated Manufacturing Services acquired Sanyo Manufacturing’s injection molding facility in Tijuana; Cemtrex Inc. acquired Periscope GmbH; Flex has sold its Valencia, California high-mix microelectronics business unit to NEO Tech; and Foxconn Technology acquired TeleEye Holdings Ltd.

Summarizing EMS companies' Q2 results, and comparing them with the same period a year ago, we find that in the Large Tier (>$3 billion), Jabil Circuit showed the most improvement in operating margin to 3.2% from 2.9%; Key Tronic led the mid-tier ($300 million to $3 billion) in operating margin improvement, up to 2.1% from 1.7%; in the small tier, (SMTC Corporation showed the most improvement in operating margin to 2.2% from 0.3%. (Source: Lincoln International)

When pruning is necessary to ensure survival, what is the best way to do it? Should every enterprise survive? Nothing is forever!

There is now huge overcapacity in board building enterprises. The world's largest contract assembly/box build companies invested heavily in facilities and labor to satisfy the demands of one or two surging customers. Now there is more competition. Markets are becoming saturated. Margins are being squeezed. Innovation is taking its toll.

Who feels the pain when there is no more room to cut costs and still make a profit? What happens when the market declines or shifts? What will be the cost for change this time?

A recent conversation with colleagues on this topic reminded me of days gone by when Burroughs and Motorola squeezed their PCB makers and supply chain so hard for price reductions—then moved the orders elsewhere—that the board makers folded, and some suppliers vanished.

In July, Apple reported a third-quarter profit of $7.8 billion, compared with $10.7 billion in the same period a year ago. Revenue from the iPhone was down 23%. “Currently, Apple’s profits are declining, and the effects of this decline have been passed on to suppliers,” a New York’s China Labor Watch report says. Digitimes reported this summer that Apple suppliers were feeling more pressure to reduce costs.

News from Taiwan

NanYa PCB reported July sales of $77.46 million, about the same as June's sales, but up by 7.5% from July 2015. Losses for the 2nd quarter were reduced to $7.32 million from the $10.2 million loss the previous quarter.

Low order levels for the iPhone during the first half of 2016 are negatively affecting the sales of a number of FPCB suppliers including Zhen Ding and Flexium.

Flexible printed circuit board (FPCB) producer Ichia Technologies had consolidated revenues of $17.2 million for July, up 4.48% for the month but down 13.2% from 2015 on the year to date. In July, sales of integrated chassis components totaled $4 million, while sales of FPCB products reached $13.5 million. Accumulated Y-T-D 2016 revenues were $106 million, down 24.45% from the previous year.

Automotive board supplier Chin-Poon Industrial increased its holdings in Draco PCB Public, its Thai subsidiary, from 52.5% to 75%.

Compeq Manufacturing had sales of $115 million for July.

PCB maker Apex International has reported net profits of $4.078 million for the second quarter of 2016, up 26.7% on quarter and 65% for the year to date. The company's July revenues were $29.1 million for July, up 33.7% over July 2015.

The value of PCB products produced by Taiwan-based producers in China and Taiwan is expected to increase 8.8% to $4.54 billion in the 3rd quarter.

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