Vol. 13, No. 5: May 20

Table of Contents

Cover Story

EMS Providers Go For Chinese Handsets


IBM Looms as Design Competitor

Solectron To Invest in Design

Preparing for Lead-Free Assemblies


Three-Five Acquires Malaysian Provider

Varian Adds EMS Assets in S. California

Reptron To Exit Distribution

Tracewell Buys EMS Provider

IBM and Celestica in Automotive Pact

Flextronics Adds Power Supplies To Its Menu

Some new programs

Restructuring continues

Q1 2003 Results

Last Word

Silence Is Not Golden

EMS Providers Go For Chinese Handsets

A growing number of EMS providers have set their sights on producing handsets for what has been described as the world’s largest handset market – China. This growing market has not only attracted tier-one players, but also some smaller providers. The outsourcing they seek is coming from both global OEMs and Chinese cell-phone makers. What’s more, a number of outsourcing agreements have recently appeared from domestic suppliers to the Chinese handset market.

# Solectron (Milpitas, CA) has announced a joint venture with a Chinese cell phone provider, Guangzhou Soutec (Group) Technology Co., Ltd., for whom the joint venture will manufacture handsets on an exclusive basis. Having signed a definitive agreement, Solectron is the majority owner of the joint venture, Soutectron Technology (Guangzhou) Co. Ltd.

The joint venture will lease 100,000 ft2 from Soutec on its campus in Guangzhou, China. About 850 employees will be hired. Operations are slated to begin following the Chinese government’s approval of the venture, expected by the end of May.

“This strategic partnership will enable us to gain a competitive edge in capturing China’s fast growing multibillion-dollar market and gives the expertise needed to tailor to the different needs of Chinese cell phone providers,” stated Chester Lin, executive VP and president, Solectron Asia/Pa-cific.

Soutec said working with Solectron will enable Soutec to quickly expand production capacity to meet the fast growing market demand in China.

Solectron views this joint venture as an alliance with a significant player in the handset market in China. “I think we will get further with that strategy than if we were going to…go it alone,” said Solectron’s new president and CEO, Mike Cannon, during the company’s recent investor conference. “And I think it’s more economical for the company to do that.”

This move signals that under the new CEO Solectron will consider alliances as a viable alternative to acquisitions. Depending on the case, “I think alliances can be as smart or smarter than acquisitions,” said Cannon.

With $200 million of revenue in 2002, Soutec is described as the largest cell-phone designer, manufacturer and marketing company in Southern China. The company was founded in 1999 by six high-tech companies owned by government entities in China.

# VTech Communications Ltd (Hong Kong) has started production of GSM phones in Liao Bu, Dongguan, China, for several OEM customers including three Chinese companies. These Chinese customers are Digital China for production of a GSM phone with color display, Telsda for two LCD fold GSM phones and CECT for an LCD GSM phone. VTech has also added a Canadian customer, Microcell, for whom VTech is manufacturing a 1900 Mhz GSM phone. All but the Digital China phone come with black-and-white displays. In addition, VTech reports it is negotiating with several more handset OEMs from China and other regions.

VTech Communications, which generated EMS sales of $96.8 million for 2002, is expecting an increase in sales from the manufacture of GSM phones in the coming months. The VTech Group maintains three core businesses: EMS, telecom products through its cordless phones, and electronic learning products. VTech has also added its own line of cell phones made elsewhere.

# PEMSTAR (Rochester, MN) has recently started business with several Asia-based handset manufacturers in its Tianjin, China facility. These new customers include Chinese companies. In addition, Motorola remains a strong handset customer within the Tianjin facility. Including Motorola, PEMSTAR is working with five cell-phone customers, of which three are Chinese-owned. All five customers are supplying the Chinese handset market out of the Tianjin plant, and PEMSTAR assumes some are feeding that market exclusively.

The Tianjin facility is located within an area that has become China’s cell-phone corridor. Having been there for five years, PEMSTAR says it has the longest history in the corridor of anyone in the EMS industry. CEO Al Berning attributes PEMSTAR’s recent cell-phone wins to this geographic position, the facility staff’s five years of experience in the handset arena, and the company’s competitive pricing.

Listed at 110,000 ft2, the Tianjin facility is undergoing expansion with the construction of a new building.

# Nam Tai Electronics (Hong Kong) is participating in the Chinese handset market on at least two levels. In one case, Nam Tai will produce cell phones in semi-knocked-down (SKD) form for JCT Wireless Technology Company Limited (Hong Kong), which has won a contract for outsourced production of one million SKD phones (March, p. 7). On another level, Nam Tai is supplying mobile-phone LCD modules to China’s TCL Mobile Communication Co. Ltd. (Jan., p. 6). Nam Tai holds equity stakes in JCT’s parent company as well as TCL and its parent.

Nam Tai’s latest expansion project in Shenzhen, China, will add capacity for its mobile-phone business. New production lines will mainly focus on mobile-phone components such as LCD modules and RF modules as well as the manufacture of complete handsets. The project will add about 250,000 ft2 at an estimated cost of $40 million (Feb., p. 8).

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IBM Looms as Design Competitor

A number of EMS providers are pursuing design services as a way to win manufacturing business. However, when these providers seek customers on the design side, they are plunging into waters already occupied by companies that specialize in design. Many of these companies are small, local design firms that in and of themselves do not pose much of a threat. But among these small fish, there now swims a leviathan – IBM Engineering & Technology Services (Armonk, NY).

Not only does IBM E&TS employ about 1000 engineers, it has become a global design services provider with the recent launch of a European operation in Mainze, Germany. IBM E&TS offers design services on the chip, board and system level, with the ability to offer end-to-end design and development for a large customer including, if necessary, the transfer of customer engineers to IBM. In IBM-speak, this end-to-end offering goes by the name mission transfer services.

Although IBM E&TS has yet to land any mission transfer projects, it has signed a number of customers. For instance, Medtronic hired the IBM unit to do board- and system-level design for a pacemaker monitor system. In another case, IBM E&TS has been performing system design work for the New York Stock Exchange so it can update main clients on the trading floor. Other design customers include Minolta at the card level and AMD and Sony at the chip level.

EMS providers are among the players that IBM E&TS sees as competition. “Given the breadth of our offerings in a number of design areas, that segment won’t be our only competition. There will certainly be client conversations where we clearly will compete against well-established EMS players,” says Cary Ziter, manager of communications for IBM E&TS. “The breadth of our engineering skills and deep well of patents and IP portfolio will help us differentiate ourselves.”

While the IBM unit will compete with EMS providers for board and system design work, it won’t pursue the follow-on manufacturing. “Clearly, that is not our goal,” says Ziter. Moreover, IBM E&TS is open to conversations with EMS providers who could take on the manufacturing role for customers outsourcing both design and production.

Card- and system-level design are a major activities within E&TS. Of about 650 E&TS people in the US, about 350 had worked on card- and system-level projects for IBM’s server organization. According to Ziter, no more than 25% of E&TS’s design work is just chip-level design. In addition to design services, the unit also offers consulting.

IBM E&TS was launched in October 2002 with design groups in the US and Japan. Some 100 engineers in Germany were added last month. IBM E&TS is part of IBM’s Technology Group.

Ziter admits that one could argue about the timing of this launch in the midst of market weakness. “Clearly, we’re aware of that. Now is the time to be planting our seeds,” says Ziter.

Solectron To Invest in Design

Mike Cannon, Solectron’s president and CEO, recently told investors that the company plans to make investments in design services as part of an overall effort to improve Solectron’s position.

At Solectron’s investor conference, Cannon said the company has not finalized its thinking on design capabilities, but he outlined two areas of interest to Solectron. One is redesigning products for cost reduction. “I see that capability as being very strategic to the industry, strategic to Solectron,” said Cannon. The other is ODM. “There may be select markets where we wish to have a capability to design a product and a follow-on set of products. And this may be in market segments where the entry level is really commoditized and the customer may wish to take their engineering resources and focus them more on leading-edge type products.”

But first, Solectron intends to organize its existing design capability to take better advantage of it. “Solectron today has an impressive design capability. I think it’s a well-kept secret. We have it scattered throughout the company,” said Cannon.

To improve its position, Solectron has announced four major initiatives: business growth, return to sustained profitability, asset velocity, and achieving execution excellence. Part of the job will be to address the complexity of Solectron’s organization and IT systems.

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Preparing for Lead-Free Assemblies

Part two of a series

Last month’s cover story outlined a number of issues that stand in the way of lead-free soldering, which will be required for certain products sold in the European Union after June 2006. This month, MMI will explore what can be done to prepare for this lead-free deadline.

EMS providers must plan for both process and equipment changes. Much of the process groundwork has been done in that NEMI has selected a lead-free alloy, Sn3.9Ag0.6Cu. Still, the alloy will corrode parts of some wave soldering machines, and these will require retrofits for lead-free operation. “If we have an older machine, say pre-2001, there’s a pump and pot conversion kit for the machine that we would use,” explains Kim Hyland, director of process integration at Solectron.

Once a wave soldering machine is loaded with tin-lead, switching to the lead-free alloy is no easy matter. So Solectron has realized that its sites will most likely dedicate a wave solder machine for lead-free operation. Likewise, Celestica will avoid running tin-lead and tin-silver-copper in the same wave solder machine. Presumably, other providers are reaching the same conclusion.

As for SMT equipment, the lead-free alloy’s higher melting temperature will require more heat and cooling from the reflow oven. Providers will need to assess the capacity of their existing ovens. If “you’re making do with a five-zone oven, you’ll probably need to go to a six-zone,” says Phil Zarrow, president of the consulting firm ITM (Durham, NH). That’s because ITM calculates that the alloy will use up about 19% more energy in heating and over 40% or so additional energy in cooling.

Depending on oven type and product complexity, even a seven-zone oven might not work, according to Thilo Sack, an advisory engineer at Celestica. “But if you have the latest-generation ten-zone oven, then you shouldn’t have a problem,” says Sack.

Higher oven temperatures increase the risk of board warpage. As a result, lead-free operations will want center board support on their ovens, according to Zarrow.

Inspection, both automatic and manual, will also be affected because a lead-free solder joint has an appearance that differs from the tin-lead norm. Providers using AOI (automatic optical inspection) systems will be looking at setting new thresholds of acceptability. Sack calls this a simple reprogramming of the AOI system. But Zarrow finds that there is not enough data yet to know how AOI systems will perform. In addition, a January 2003 article in Circuits Assembly magazine by Jasbir Bath of Solectron reported that more work is needed to qualify AOI tooling.

Then there’s lead-free repair, which remains an unknown. NEMI is tackling the repair issue to establish a process for reworking lead-free assemblies. This effort will answer an important question. Say you are using a certain cored wire solder for rework. “Does it work with the multiple different alloys of lead-free assemblies coming into the repair shop?” asks Solectron’s Hyland.

Despite the need for new or modified processes, lead-free assemblies are already in volume production, primarily in the consumer area. For example, Solectron can run lead-free production with a peak reflow temperature of 235ºC. Since most parts have been qualified to 225ºC for moisture sensitivity, the provider must confer with suppliers of such components when they’re designed into a lead-free assembly. “We need to still establish with the suppliers and the customer that those parts can withstand even those temperatures,” says Hyland.

For Solectron, this is but a temporary fix. The solution is to use lead-free components that are fully qualified for the higher temperatures of lead-free soldering, including where applicable, compliance with the moisture sensitivity standard J-STD-020B (April, p. 2). To that end, Solectron has begun to compile a lead-free AVL (approved vendor list). The provider estimates that this AVL, which results from adding lead-free fields in its component database, will take 12 to 18 months to set up.

Looking at the July 2006 lead-free date for the European Union, “we do want to be ready probably one year earlier than that with a complete bill of material,” says Solectron’s Hyland. The reason is that some designs are probably starting now and some will definitely begin early next year for release July 2006, he explains.

Indeed, ITM’s Zarrow is urging both OEMs and EMS providers to lay out lead-free roadmaps if they haven’t already done so. “You can’t ignore it any more. You can’t put your head in the ground, which is what a lot of people in North America were doing because we’ve been talking about this for ten years now. It’s becoming a reality, and you’ll have to deal with it,” he says. “There are going to be some exemptions. For the most part, this is a reality.”

Now that NEMI’s lead-free alloy is gaining acceptance, EMS providers should start working with it, says Zarrow. But what about the EMS companies who don’t have the resources of a tier-one provider? Much of the lead-free work has been done through consortia, and that work will end up in the public domain for use by any provider. Still, smaller providers “will have to do some of their own print stud-ies…and understand the characteristics of these new pastes and then obviously go back through the wave solder [machine],” says Hyland. Those providers will need to learn the characteristics of wave soldering with a lead-free alloy.

What can OEMs do to prepare? “They have to be asking their CEMs how prepared they are and finding out whether their CEMs are up to speed on this right now,” says Zarrow.

When it comes to lead-free designs, OEMs should expect limitations in part sourcing during the early stages of lead-free conversion. “What it might mean in the short term is that you may have to single source certain part numbers or find substitute parts if there are other suppliers that have been more proactive,” says Celestica’s Thilo Sack.

Solectron is asking OEMs to decrease the number of through-hole parts in their lead-free designs. If the number can be reduced sufficiently, then Solectron can switch from using a large, dedicated wave solder machine to a more efficient selective soldering approach.

OEMs exempted from the European mandate (April, p. 1) can avoid these preparations. But even this strategy is not risk-free. It is becoming clear that at least some component suppliers want to end up with a single lead-free part number rather than supporting both leaded and lead-free versions. In such cases, exempted OEMs that want the old parts may find them more expensive if indeed they are available. “If everyone else has changed, and now all of a sudden you have one or two people coming along asking for a leaded part, they might be the ones at the end of the day that are going to have a problem,” says Sack. The alternative is to use lead-free parts in existing tin-lead assembly lines. But this choice requires that somebody – the OEM or its EMS provider – prove that these parts are backward compatible (April, p. 2).

So it may be that even the exempted OEMs will find themselves confronted with the lead-free issue, one way or another. “What I’ve been telling our infrastructure customers is not to hide behind the exemptions as a way to avoid looking at what it would take to convert your product to lead-free anyway,” says Sack. Not only is there a question about future component costs, but the EC intends to review infrastructure, server and storage exemptions.

To convert to lead-free products, OEMs will rely heavily on their EMS providers. Ten years ago, that would be not be the case. Today, many OEMs have given up their SMT process expertise through outsourcing, if they had this experience to begin with. Although responsibility for meeting the EC mandate lies with OEMs, implementation of lead-free assembly will largely take place within the EMS industry. The clock is ticking.

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Three-Five Acquires Malaysian Provider

Three-Five Systems, or TFS (Tempe, AZ), has expanded its EMS capabilities in Asia by acquiring control of Unico Technology Bhd., a privately held EMS company in Penang, Malaysia. As the third EMS deal made by TFS in recent months, this move further reflects the company’s transition from a supplier of display products to an EMS provider with a specialty in displays. In the two prior transactions, TFS acquired OEM assets from Microtune (April, p. 6) and bought ETMA, an EMS provider in Redmond, WA (Dec. ’02, p. 3-4).

Unico’s business and certain of its assets were acquired by TFS Electronic Manufacturing Services Sdn. Bhd., a joint venture that is 60% owned by a TFS through an overseas subsidiary. The remaining 40% is held by Unico Holdings Bhd., the former parent of Unico and the investment arm of the Chinese Chamber of Commerce of Malaysia.

Unico’s customers include Avocent, a producer of keyboard, video, mouse switches; WatchGuard Technologies, a developer of security software and firewall hardware for virtual private networks; Teledex, a developer of communications equipment; and Intel. Capabilities include six SMT manufacturing lines, supply-chain management, box build and system integration and fulfillment as well as RF design, NPI and prototyping.

“Many of our existing customers utilized Unico for their low-cost Asian manufacturing, and those customers have told us that Unico was second to none in many of its capabilities, including IT infrastructure, supply-chain management, and factory floor processes. Acquiring this tremendous set of skills will allow us to accelerate the upgrade of our manufacturing plants in Redmond, Manila and Beijing,” stated Jack Saltich, president and CEO of TFS. In particular, TFS intends to apply the Malaysia facility’s best practices to speed up qualification of its Beijing operations by existing and potential customers.

The financial statements of the joint venture will be fully consolidated with those of TFS. TFS expects that this acquisition, announced April 28, will be accretive, cash flow positive and contribute $15 to $20 million of additional revenue for the remainder of 2003.

At the end of last year, the Malaysian provider had 600 employees and two plants in Penang with a total of 360,000 ft2. However, the TFS joint venture did not purchase all of the Unico assets. According to TFS, the Penang operation is scaled to support the expected 2003 volume of business.

TFS’s share of the initial cost of capitalizing the venture was under $5 million, most of which will be used for working capital. No advance payment was required for Unico’s property, plant and equipment as all of it will be leased from the seller.

Varian Adds EMS Assets in S. California

Varian, Inc. (Palo Alto, CA) has bought the customer-related inventories and certain fixed assets of Comtel Electronics in Tustin, CA, from EMS provider Corlund Electronics (Camarillo, CA). Varian plans to move the Comtel customers to its facility in Poway, CA, where they will be integrated into existing business of Varian’s Electronics Manufacturing unit.

“This acquisition further expands our presence in the San Diego region,” states Allen Lauer, Varian’s chairman and CEO. With this deal, the company believes it is now the largest by sales of any EMS provider in the San Diego region. What’s more, Varian will be adding workers for its Poway factory.

“Due to a payment default of Comtel Electronics’ number-one customer, we have been forced to restructure the company and our business plan,” says Lyle Jensen, Corlund’s CEO. “The San Diego box-build operation was closed, and the Comtel Electronics customer base was sold to Varian. This will ensure Corlund Electronics and their new facility in Camarillo remain robust and strong on an ongoing basis.”

Comtel’s customers, who come from industries including medical equipment, optics and aerospace, have agreed to transfer their work to Varian. According to Varian, these customers require what Varian specializes in – flexible manufacturing of short-to-medium runs with frequent engineering change orders.

The company anticipates that the acquisition could add between $15 and $20 million in annual revenue once the customer transitions are finished. Varian expects the deal will become accretive in its fiscal 2004 Q1, ending in early January 2004, but startup costs will have a dilutive effect in the current quarter and Q4 of fiscal 2003.

Varian’s Electronics Manufacturing sales amounted to $40.9 million in its March quarter, down 6.8% from a year earlier. But the EMS unit achieved an operating profit margin of 12.2%.

Reptron To Exit Distribution

Reptron Electronics (Tampa, FL) has agreed to sell its components distribution division to the distributor Jaco Electronics (Hauppauge, NY). With this move, Reptron is looking forward to focusing its efforts in the EMS business.

Reptron will keep its EMS division, Reptron Manufacturing Services, as well as the Reptron Memory Module and Reptron Display & Systems Integration divisions. The EMS division, an MMI Top 50 provider in 2002, is by far the largest of the three businesses, which combined for sales of $211 million last year.

Reptron’s distribution division contributed about 34% of its sales in 2002 and about 95% of its operating loss.

The deal is subject to a number of conditions, and Reptron expects it to close before the end of May.

Tracewell Buys EMS Provider

Tracewell Systems (Columbus, OH), a systems packaging and integration house, has purchased EMS provider Acme Electronics, LLC (Cuba, NY), doubling the size of the company. This deal creates an EMS/electronics packaging company with the ability to combine production, simulation and test with high-end design. Acme brings Tracewell some capabilities that it had lacked including high-volume manufacturing, HALT (highly accelerated life testing) and HASS (highly accelerated stress screening), and certification for safety compliance.

Tracewell has added Acme’s 150,000-ft2 operation in New York to its own 150,000-ft2 facility in Ohio. Both are design-and-build facilities. The combined company will employ more than 200 people.

In business for 30 years, Tracewell has provided electronic packaging for a wide range of standard and proprietary bus systems and performed system integration through level 5. Since the company offers standard products such as backplanes, power supplies and level-3 and -4 hardware, it can apply the know-how from building these products to contract manufacturing programs. Tracewell serves the US Department of Defense, prime contractors as well as industry segments such as test and measurement and medical.

Acme, a 70-year-old manufacturer, has a history of supplying high-power systems to the medical, communications and data storage industries. It has expertise in analog power supplies, thermal designs and system integration.

Tracewell believes that Acme’s ability to provide safety compliance and certification in concert with design and NPI is an advantage. “You find that in the tier one group. You almost never find it, in our experience, in the tier two, tier three manufacturers,” says Matt Tracewell, executive VP at Tracewell Systems.

Acquiring the Cuba, NY operation is already paying off. “We have some business we are about to win as a result of Cuba,” says Tracewell. This high-volume business is in final stages after the customer saw the capability of the Cuba facility. He adds, “We already have some surface mount product we’ll move up there as well.”

Tracewell recently installed a high-end surface mount line in the Cuba facility, which had been through-hole only. The company paid about 20 cents on the dollar for this two-year-old equipment. “We’re taking advantage of the market conditions to upgrade equipment and facilities,” says Tracewell.

Acme Electronics formerly operated as a division of Acme Electric, a subsidiary of Key Components (Tarrytown, NY). The slowdown in telecom and datacom markets left the Acme facility underutilized.

“Our financial position allowed us to make this purchase and invest in our long-term growth,” says Larry Tracewell, founder and president of Tracewell Systems. The self-funded company is profitable and debt-free.

Siemens Sells Assembly Center

Siemens Dematic Electronics Assembly Systems has signed an agreement to sell its Advanced Assembly Technology (AAT) Center in Norcross, GA, to Engent, a new company formed by three executives from the center.

Opened in October 2001, the AAT Center occupies an 11,000-ft2 facility with a Class-10,000 clean room and more than 60 pieces of analytical and manufacturing equipment including two SMT lines and a 5-micron die bonder. Under Engent, the center will continue to provide NPI services, commercialization of new technologies, reliability testing and failure analysis. “We provide the link between product concept and volume manufacturing, which allows companies to easily incorporate new technologies into their products without the risk of delaying the product launch,” states Matt Perry, Engent’s VP of sales.

The center has done work for about 62 customers from the US and China. They include Tellabs, Scientific Atlanta, Motorola and China’s Huawei. OEMs make up 80% of the customer base. Last year, the center recorded sales of about $1 million.

For example, the center can place 0201 parts, chip-scale packages, microBGAs and flip chips and then perform testing and failure analysis for level 1 and 2 qualification. Capabilities also include optical and MEMS devices.

“OEMs used to do a lot of this work. But contract manufacturers are not doing it,” says Perry. “In general, OEMs are not paying contract manufacturers to do it.”

Siemens started the center to sell consulting services to customers for Siemens placement equipment. The management buyout of the center allows Siemens to save the costs of supporting it. Yet Siemens will still work closely with the center as Engent will become a member of the newly formed Siemens Dematic Technology Network.

Editor’s note: A correction was issued in June regarding the above article, which does not describe the transaction accurately. Siemens Dematic did not sell the Advanced Technology Center to Engent. Engent has acquired the rights to the facility, but is leasing it from Siemens.

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IBM and Celestica in Automotive Pact

IBM and Celestica have teamed up to supply telematics devices, which record car data and transmit it to remote databases via wireless networks. This effort shows that the automotive sector is one of the markets that Celestica has earmarked for diversification.

Celestica (Toronto, Canada) will provide design expertise and manufacturing for the new eDevices, often called black boxes. Initially, IBM will contribute software tools and its Automotive Client Architecture software. In the near future, IBM expects to provide ASIC and SoC (system on a chip) design and fabrication.

These telematics devices provide information on an array of parameters such as speed, location or the use of seatbelts, as specified by the customer. Key markets for the devices include the automotive aftermarket, car manufacturers, suppliers, the commercial market and the insurance industry.

The eDevices are in production, and pilot programs are underway in the UK and the US. Norwich Union, reportedly the largest auto insurer in the UK, will use the devices for the pilot program of its Pay-As-You-Drive insurance. In New York, the American Transit Insurance Co., which insures some 80% of New York City’s Yellow Taxis and limousines, plans to use the technology to provide unimpeachable data at the time of accidents. The goal is to reduce fraudulent claims and increase the safety of drivers and passengers.

Flextronics Adds Power Supplies To Its Menu

Flextronics (Singapore) and India’s Celetron, an EMS and products company, have signed a licensing agreement that allows Flextronics to manufacture power supply units for Celetron’s OEM customers. This agreement allows Flextronics to add another service to its vertical offering.

The company plans to manufacture Celetron’s AC/DC power supplies in China for the PC, server, printer and consumer markets.

Described as India’s largest exporter of electronics, Celetron is a full-service EMS provider that also supplies power conversion, memory and RFID products. Celetron manufactures mainly in India and Sri Lanka with about 500,000 ft2 of assembly capacity, of which 300,000 ft2 is in Class-100 cleanrooms.

Some new programs…NMS Communications (Framingham, MA), will consolidate all wired equipment manufacturing with Teradyne Connection Systems (Nashua, NH). As part of this agreement, Teradyne will provide all electromechanical integration, program management and test services for NMS’s voice quality systems. NMS also has an EMS relationship with Plexus (Feb., p. 8)….Integrated Microelectronics, Inc. (Laguna, Philippines), has started manufacturing PCB assemblies for Philips Oral Healthcare (Snoqualmie, WA). IMI is producing the assemblies for two models of the Philips Oral electronic toothbrush, sold under the Sonicare brand….BeamReach Networks (Sunnyvale, CA) has awarded a three-year contract to ISIS Surface Mounting (San Jose, CA). ISIS will manufacture base stations and subscriber remote units for BeamReach’s broadband wireless access system, now heading into volume production. As ISIS’s high-volume manufacturing partner, IMI (see prior item) is in a position to benefit from this contract as well. Under the agreement, IMI will provide manufacturing services as volumes increase….LaBarge (St. Louis, MO) has received a $1.3-million contract from Lockheed Martin (Syracuse, NY) to make mast cable assemblies and interconnect devices for the US Navy’s next-generation attack submarine. Also, Dade Behr-ing Holdings (Deerfield, IL) has awarded LaBarge a $1.3-million contract to produce flexible printed circuit assemblies for laboratory equipment.

Restructuring continues…Solectron (Milpitas, CA) will close its Westborough, MA facility by the end of November with the loss of 360 jobs. The company has also announced the closure of a call center in Stream Silver City, NM, and a repair facility in Amsterdam, the Netherlands….Celestica will shut its facility in Swords, outside Dublin, Ireland, and eliminate 250 jobs….Plexus (Neenah, WI) will close its manufacturing facility in Richmond, KY, and about 250 people will be affected. The Plexus PCB Design Group will no longer pursue stand-alone design opportunities. PCB design locations in Nashua, NH; Kelso, Scotland; as well as some smaller locations will be closed or scaled back. About 30 professional and technical people will lose their jobs. Plexus will also reduce corporate and engineering staffs by about 120 positions in total….Elcoteq (Espoo, Finland) will cut 86 jobs at its Lohja, Finland plants instead of 160 as estimated earlier (April, p. 7)….VOGT electronic (Obernzell, Germany) has closed its Miesau and Hoppegarten production sites in Germany….PEMSTAR (Rochester, MN) has consolidated two Thailand facilities into one and turned its Taunton, MA and San Jose, CA facilities into primarily NPI centers.

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Last Word

Silence Is Not Golden

EMS companies will often decline to identify customers that award new programs. But lately this practice is being taken to a degree that may well hurt the EMS industry. By choosing not to identify the sources of new business, providers create doubt about whether they are generating enough business to offset weak demand and end-of-life programs.

If only this were a simple problem with an easy answer. But of course, there are several reasons why a provider might not want to identify customers placing new business. First and foremost, many customers require their providers to sign nondisclosure agreements. So a provider must go the extra mile to convince a customer that it’s a good thing to identify the customer. And the customer might still say no.

Second, publicly held providers are only required to disclose those customer wins that would have a material effect on financial results. The number of such megadeals has dwindled as the number of asset divestitures has declined. So there are fewer deals that must be disclosed by SEC rules.

Third, organic outsourcing is the order of the day, and EMS providers are increasingly tight lipped about organic wins that are not material. Providers have what they perceive to be a good reason for keeping silent – the competition. With today’s glut of available capacity, EMS companies are more concerned than ever about competitors making inroads with customers. This is especially true in newer markets such as consumer, medical and industrial where a provider may believe it has a lead on the competition.

Finally, there are providers that have historically kept quiet about program wins. It’s part of their culture.

Given these reasons, a provider can easily explain why it is not in its best interest to identify customers that are awarding new business. But that does not necessarily make it right for the industry as a whole. With today’s lack of demand, the industry needs show that outsourcing is alive and well. Citing the low penetration rate of outsourcing will no longer get the job done. This argument, while still valid, has worn thin after two years of EMS market decline. No, the industry needs to demonstrate the continuation of outsourcing through real examples that carry some weight.

Unfortunately, this advice may fall on deaf ears. After all, no provider wants to be the first one to disclose customer names, while its competitors are free to exploit the information. But is releasing this information really harmful? Customers who want a second source will find one whether or not they are known to other EMS providers.

Restructuring has cast a pall over the industry. It’s time to put out more positive news of outsourcing. Acting together, providers can generate the good news that their industry needs.

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Copyright 2003 JBT Communications. Unauthorized distribution is prohibited.

MMI April 2003

MMI June 2003

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