Interesting trends in American recovery

22 November 2010

Susan Mucha

September through to November is definitely show season in the US electronics manufacturing industry. While I didn’t attend the event, ESC Boston in mid-September got positive exhibitor comments in terms of traffic.

Duane Benson, Marketing Manager for Screaming Circuits, a quick turn prototype firm, commented that prospect traffic at that show was so heavy he had difficulty finding time for a break. That is a far cry from the tradeshow scene in 2009.

At the end of September, I visited what is now known as Electronics Midwest outside Chicago. This is a combination of IPC Midwest and Canon Communications (now UBM) Canon’s Medical Design & Manufacturing Midwest cluster. Combining the shows, which were previously held simultaneously about 30 miles apart, was a great idea. IPC provides an outstanding technical conference and MDM and its associated shows broaden the attendee base for niche exhibitors such as electronics manufacturing services (EMS) companies. While this is clearly a regional show, traffic was up from the prior year’s split shows and according to IPC information, equipment was sold on the floor which I always see as a positive economic indicator.

At the end of October, I attended SMTA International in Orlando, Florida. If SMTA’s preliminary numbers of 700+ attendees was correct it may be the largest attendance since the show moved out of Chicago. The conference sessions I chaired and co-chaired were on the high end of attendance relative to previous events.

I took the time to walk the show floor and chat with exhibitors to get a better feel for the trends they were seeing in their respective segments as well as their perspectives on the economy overall. Several trends appeared to be developing:
• Most of the exhibitors with familiarity with EMS seemed to feel that the U.S. market for high volume electronics manufacturing was dead. They felt that regional high mix, variable volume suppliers were still viable. The equipment manufacturers I talked with see this as a great market.
• There is a lot of focus on working smarter. At an equipment level, this can mean better using the technology in continuous improvement initiatives or selecting equipment with lower operating costs or more flexible setup.
• Financing has a new wrinkle. While some slide in payment terms was acceptable a couple of years ago, today companies failing to make loan payments on time face the same interest rate escalation charges that people who late pay their credit cards contend with. In some cases, this impacts equipment purchase decisions because insufficient cash flow to cover scheduled loan payment could sharply spike their rates on previously low interest rate loans.
• People take longer to make decisions, but then want whatever they’ve decided to buy immediately.
• Q4 last year and Q1 this year reflected a significant upturn economically for most businesses. Many of the equipment vendors were exhibiting at SMTAI for the first time and had made that choice based on the recovery they saw during that period. Q2 and Q3 were slower business wise. However, some companies are seeing a spike in Q4 and Q1 projections again, so 2011 may have similar dynamics.

Marc Apell, Americas sales manager for Accel/Electrovert products at Speedline Technologies, said that they were seeing a focus on lower operating costs and green initiatives. He added that evaluation processes had lengthened and required far more information exchange, as buyers were carefully thinking through their choices in an effort to spend wisely. The Speedline booth featured a reflow module that reduced both power and nitrogen consumption.

I also spoke with Liz Morrill, a Regional Sales Manager with Mydata Automation, Inc., and John McMahon, Mydata’s director, technical services. Miniaturisation is definitely driving the vendors. Mydata’s MY500 solder jet printer has been getting good reviews from the EMS companies I know that use it. Morrill and McMahon definitely saw continued interest in lower non-recurring cost and faster changeovers within Mydata’s customer base.

Besides requiring no stencil, the MY500 has the capability to vary solder volume by pad rather than by component or across the board. This can be particularly attractive in high density boards and/or for components such as QFNs. The precision with which the printer works also cuts solder paste use between 30- 90%, depending on application, and virtually eliminates cleanup. Elimination of the stencil also eliminates the potential for stencil mismatch with the substrate.

Eliminating the stencil is not Mydata’s only contribution to reduced changeover time. Their full line includes a board handling cassette, known as Flowline, which will load the correct programs for the line based on reading a bar code as the board enters the line. This works well with companies adopting Lean manufacturing philosophies.

Troy Johnson, Vice President of Sales at Nordsen YESTECH, said they were tapping the synergy of the Nordson, Dage and YESTECh infrastructures to grow worldwide since the combined companies gave them a large installed base for service and support in Eastern Europe and China, as well as the US. He saw the US Tier II and III markets as very strong for their AOI equipment. He added that he was seeing a lot of companies add capacity and the market was coming back.

The major trend he saw in AOI was that it was becoming popular as a tool for yield improvement analysis and manufacturability enhancement, rather than simply a tool to catch defects.

Steve Marks, Regional Sales Manager for Test Research USA, Inc. (TRI), and Barbara Koczera, pre/post sales support at TRI, were also upbeat. The company also makes inspection and test equipment.

They see miniaturisation driving increased inspection. The difficulty of inspecting hidden joints such as those found in BGAs, mBGAs, MOSFET devices and QFNs were definitely driving both AOI and X-ray inspection equipment purchases, but the recovering economy is also a factor.
TRI’s equipment link together in a common database for statistical processing control, ease of programming and lower maintenance costs.

David Cotton, customer support for Metro SMT Ltd., saw strong sales in the used equipment market. Metro SMT is a UK headquartered used equipment vendor. According to Cotton the recovery is not without challenges. Sales cycles are longer because companies’ analysis process is longer. This can be challenging because during a long analysis period, the piece of equipment a company is considering may be sold elsewhere, since no commitments have been made. Cotton said part of the trend driving longer analysis was concern about interest rate escalation if loan payment due dates weren’t met. Companies were opting to keep more cash on hand, because their financing agreements now penalised late payments. At the same time, that issue also made used equipment more attractive because of its lower price. Cotton said service, price and honesty about issues such as leadtime was extremely important in selling in the current market.

I also spoke with two EMS providers. Jim Chen, VP sales division I of Tailyn Communication Company, Ltd., had given a presentation on key differences between the ODM and EMS business models in SMTAI’s Contract Manufacturing Symposium. The Taiwan-based firm offers both ODM and EMS options for companies in telecommunications, wireless communications, networking, point-of-sale and industrial PC industries.

Chen discussed some overall trends he is observing in Taiwan and China. First, while material lead-times are longer than last year, there are signs the market is starting to stabilise as of this quarter.

In terms of business model expansion, Chen sees the emergence of a Design, Manufacture, Service model among Tier One EMS players with the goal of increasing value-add in high volume consumer products. As part of this model, some Tier Ones in China are expanding into retail, opening superstores to provide end market fulfillment.

He also noted that the labour rates in Shanghai and Guangdong continue to increase and this is driving larger EMS companies inland. He is watching the construction of the Sino-Russian cross-border railway bridge with interest. When completed, it will link the Tongjiang port in Northeast China’s Heilongjiang Province and Russia’s Leninskoye, as well as linking the two nation’s railway networks. According to Xinhua, construction of the railway bridge is part of an effort by the Heilongjiang government to increase trade with Russia.

According to Chen, Tailyn continues to successfully focus on a high mix, lower volume business model at the mid-tier level. The Company celebrated its 30th anniversary in April.

Dave Vickery, Vice President of operations at Conelec of Florida Incorporated was upbeat on the US EMS mid-tier market. Conelec, a central Florida-based EMS provider was exhibiting at SMTAI. He said they had a strong Q1 and Q2 this year, flat summer and what looked to be a strong Q4 and Q1 coming up. The company has a mix of military, medical and industrial customers. Vickery said he saw growth in security applications and LED lighting. He was also seeing some work come back from Asia. Component availability remained a challenge.

All-in-all SMTAI was an interesting show. While it definitely classifies as a regional show, as these interviews indicate, organisers did a good job of bringing together a multinational group to share global perspectives. Next year SMTAI moves to Ft. Worth, Texas. It will be the first year for that show in that location, so no predictions about what the show will look like.

I’ll close with a bit of Texas trivia. I live in El Paso, which is far west Texas. In terms of mileage, I’m actually closer to Los Angeles than I am to Ft. Worth - Texas is that big a state.

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