Reflections on the most exciting segment of electronics

02 August 2010

Susan Mucha

I’ve focused this article on the electronics manufacturing services (EMS) industry rather than on the electronics industry as a whole. I feel that the evolving EMS business model has been such an integral part of the electronics industry evolution that it deserved special focus.

I got my start in the EMS industry back in 1981 working for a company called SCI Systems, Inc. (now part of Sanmina-SCI). Old-timers know that the SCI stood for Spacecraft Incorporated. The name had been condensed to initials as the Company broadened its business focus from aerospace into commercial products. When I started, I used an IBM Selectric typewriter with proportional spacing to do my work. We communicated internationally with Telex machines. PC boards were laid out by hand on large mylar sheets by draftsmen.

By 1982, I had an IBM PC on my desk. It had a powerful 512KB of RAM and a dual 5-1/4 inch floppy disk drive system so you could run programs and save data at the same time. One of the reasons I had a PC was that SCI was building them. IBM had chosen to outsource the PC because they felt that a contractor might execute this new product faster than their internal manufacturing operations. Remember at that point, IBM was a typewriter and mainframe company. What impressed me most about working at what was then called a contract manufacturer were all the new products we were seeing. It was like going to work on the Starship Enterprise every morning. In today’s world of electronic everything, it is hard to imagine just how exciting those first couple of years at SCI were. To put it in perspective, imagine a world with no personal computers, flash drives, mobile phones, digital music players, fax machines, internet access, automated toll collection stations, airline ticket printers, ATMs, handheld bar code scanners or GPS. People working in EMS watched as all these things rolled out. And, realistically, the EMS business model helped make many of these products possible since it made it easier to rapidly achieve consumer price points.

To me, the most unique thing about the last 30 years isn’t technological change, but instead all the changes that technology has wrought over time. Electronics, electronics manufacturing , the EMS industry, outsourcing strategy, global markets (both labour and consumers), and the way we work and communicate have all evolved and are still evolving. I’ve asked three other long-term industry participants for their perspectives on this evolutionary process and some thoughts on where the industry is going.

C.P. Goh is the Chief Executive Officer of Beyonics Technology Limited, a Singapore-headquartered EMS company with facilities in Indonesia, Malaysia, Thailand and China. Prior to joining Beyonics, he served as Flextronics’ chief financial officer where he played an integral role defining one of the most successful Tier One EMS business models.

“Electronics has changed the way we operate especially in information technology. Innovations in telecommunications have transformed the way we work and our lifestyle. The mobile phone, Blackberry, YouTube and PC have transformed the way we manage and, as time goes on, we will continue to integrate our daily tasks more closely with notebooks or handheld devices,” he said.

“In terms of assembly, miniaturisation has transformed manufacturing. The EMS business model has transformed, as well. Supply chain management has undergone significant transformation and integration in the EMS partnership. The basic role of the EMS provider has also evolved from a build-to-print board stuffer to an integral supply chain partner whose role is to serve as the primary source of manufacturing and logistics expertise, since time to market is a critical success factor for OEMs,” Goh added.

Goh concluded by commenting on globalisation trends: “We’ve seen a dominance shift in regional manufacturing strength, as well. Asia has become the primary manufacturing base, compared to the US and Europe. Over the next 10-20 years, Asia will continue to grow as a manufacturing base, and the US and Europe will be more dependent on Asian production. China is the current strongest player, but Southeast Asia, Vietnam, India and Indonesia will also become dominant manufacturing centres in the next 10 years. We’ll be in this mode of geographic shift for at least another 10 years.”

Art Rutledge has been working in contract manufacturing since 1963. He started out at Electronics Modules Corporation, which was a spinoff of Bendix. At that point, his company was building cordwood soldered modules which were the forerunner of integrated circuits. He spent the bulk of his career at what eventually became EOG. He later left EOG to become president of Fawn Electronics, a regional EMS provider with operations in Maryland and North Carolina. He is a long-time member of the Steering Committee of IPC’s Electronics Manufacturing Services Industry (EMSI) Council and has chaired various committees. In that role, he was part of the volunteer team of EMS executives that helped redefine industry perception of the value that EMS companies contribute to electronics manufacturing.

Rutledge shared some of his memories of the challenges EMS faced early on.

“The early-to-mid ‘80s were a real coming of age for the industry. Back then, EMS was defense, aerospace and IBM concentrated. There was a big difference in the quality arena. Every company had their own workmanship and quality requirements vs. the standards we use today. Every facility audit was unique. Component reliability wasn’t what it is today. There was a lot of burn-in and 100% inspection/testing,” he said.

“The 80s was also the infancy of SMT. We were doing a lot with welded modules, and thick and thin film products to develop smaller footprint products while still using large form factor through-hole components. SMT changed capital requirements because the automation expense grew dramatically. We also saw a number of boom and bust cycles as EMS companies latched on to fast growing companies or industries, only to find that clustering in a growth industry could mean huge drops in sales if the industry faltered,” Rutledge added.

He noted that the 90’s saw the EMS industry become more sophisticated. Its name and reputation improved and it lost its job shop image. There was also a lot more investment focus from the public investment market. Turnkey (EMS company purchasing components vs. having them consigned from the customer) became the model. IPC specifications became precedent over mil-specs. And as EMS companies added ISO9001 certification, OEM audits became more standardised.

Rutledge also noticed some learning curve in the customer arena, as well.

“Asian outsourcing grew in popularity and companies sent projects to Asia that weren’t always good fits. A lot of customers wanted to migrate to the large Tier One EMS players because they felt that there was status in having product built by one of the major players. However, as outsourcing evolved many of these teams started to realise that no country or EMS provider was the perfect solution for all products. U.S. regional manufacturers saw some of the business that had moved away move back as part of those lessons learned,” he added.

Rutledge had one more piece of advice based on his industry experience: “the value of relationships will never go away. This will never be a commodity business.”

Duane Benson is an engineer and the marketing manager of prototype house Screaming Circuits. Screaming Circuits is a subsidiary of the MEC Companies, an EMS provider with operations in Wisconsin, Oregon and Mexico. Benson has helped to develop a prototype services business model that serves both the market for prototypes headed to volume production and the need for standalone prototyping to serve product development groups or even the individual hobbyist. Some of Screaming Circuits innovations include online ordering, standardised service packages designed to speed the ordering process for simple boards, and alliances with pc fabrication houses and other suppliers to support fast, one-shop shopping.

Benson sees a “back to the future” trend in buying patterns.

“There is now greater divergence between high volume and low volume products. Part of this is driven by an emerging class of consumer that bypasses retail channels and goes direct to either a custom manufacturer or a supplier of kits that they can do final customisation on themselves. Robotics and intelligent gadgetry are the key drivers in this area. Products include do-it-yourself (DIY) service robots, aerial drones or robotic appliances. Hobby versions of drones can be purchased and built for a fraction of the cost of the military versions thanks to open source hardware like the Arduino-based autopilot kits. DIY tools are easy enough to use that an entire new class of consumers can purchase these products, do final assembly themselves or use them with small amounts of customisation. The late 70s saw tech-savvy hobbyists building their own computers and robotics is seeing a resurgence of that DIY trend today,” he said.

“Manufacturing companies serving this industry can go military, build for big box retailers or sell to DIY consumers. Some start small supporting the DIY and custom market and later migrate to the higher volume channels as they perfect their product offerings. Screaming Circuits short-run prototype service package is geared to reach out to those manufacturers. The business model has to be tailored to serve this market because the standard rules of economy of scale in EMS don’t apply,” Benson added.

Another trend Benson predicts will be the disappearance of the “box” as a consumer computer.

“Advances in handheld processing power (ARM processors, Intel Atom) are creating smaller PCs and PC replacements. The iPad may replace the netbook computer and the smart phone will eventually have enough horsepower to replace both. Things we think of doing with the computer will continue to evolve. Eventually the consumer computer will be handheld and will link up with wireless keyboard and monitor support in your home and office,” he said.

He noted that the Intel Atom chips were a step towards increasing small device functionality and computing power. However, he also commented that the move to smaller product form factors was also going to drive assembly challenges.

“Higher density .4mm BGAs, package-on-package form factors will increase. I’m hearing rumours of .3mm BGAs and solderless attachment. With the 01005, passives may be reaching their limits and actives are getting to those geometries. This will increase assembly challenges. There really haven’t been any major changes in placement equipment capabilities in a decade. We are starting to push the edge of the envelope in terms of existing placement technology. However, the trend toward miniaturisation is a bigger challenge for the PCB fabrication companies, “ Benson concluded.

As the reminiscences and opinions expressed in this article indicate, we’ve had an exciting journey and the adventure isn’t over yet. In fact, 30 years from now it is likely that someone else may write a similar article comparing today’s leading edge technology to stone knives and bearskins. Regardless, I am happy to have chosen to spend the last 29 years in the most exciting part of the electronics industry.

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