MMI September 2005
Vol. 15, No. 9: September 2005
Results from Asia and Europe Point to First-Half Growth
Indications are that the EMS market grew by double digits in the first half of 2005 despite collectively flat sales from the nine large US-traded providers (Aug., p. 2). When contributions from 13 publicly held providers based in Europe and Asia are added in, combined sales increased by 15% in US-dollar terms for the first half (see chart). This overall result shows that worldwide outsourcing continues to fuel an expanding market, albeit one in which growth rates can vary greatly from one company to another.
The 22 publicly held providers tracked here from around the world produced aggregate sales of $46.8 billion in the first six months of the year. Clearly, these companies represent a large majority of the market, probably at least 75% of it.
A group of seven large providers listed in Asia registered the highest aggregate growth rate at 56% in US-dollar terms (chart). This increase largely reflected the results of one company, Foxconn, whose first-half consolidated sales increased by 61% year over year in Taiwan dollars, its reporting currency (first table). (Foxconn is the trade name for Hon Hai Precision Industry.) When converted to US dollars, Foxconn’s first-half sales increased by 71% to $11.5 billion (third table). Foxconn’s mammoth size ensured that the company would skew sales results for this group.
Five out of the seven Asia-based providers registered double-digit growth in the first six months. Jurong Technologies topped the list with first-half sales growth of 84% in Singapore dollars, or 90% in US dollars. The company attributed Q2 revenue and net profit growth to continued strong demand for wireless PCB assembly and modular products and steady performance of its hard disk drive business.
Nevertheless, combined net profits for the Asia group did not increase as much as sales did in the first half. Net profits were up by 32% in US dollars, compared with the 56% growth in sales. Moreover, profits actually declined in three cases.
In Europe, six publicly held providers together posted a first-half sales increase of 44% in US-dollar terms over the first six months of 2004. Again, the largest company in the group had one of the highest growth rates. Elcoteq Network saw its first-half sales increase by 46% in its euro reporting currency, or 53% in US dollars. Four out of six European providers posted first-half sales increases of 25% or more, as reported in their native currencies (second table).
Acquisitions made in 2004 or early 2005 contributed to first-half sales growth in three cases. Elcoteq acquired a Thomson plant in Mexico at the end of 2004, while Neways purchased Stork Electronics in mid 2004. Neways’ first-half growth was almost entirely due to the Stork acquisition. In the third case, NOTE made two deals in early 2005 that provided a significant boost to top line growth for the first half. The company added a Finnish provider and an Ericsson operation. PartnerTech also acquired a Finnish provider in 2005, but the June transaction had only a small effect on first-half sales.
Although overall sales growth for the European group was impressive, their combined net profit declined by 28% in US dollars.
When net profits (in US dollars) for all three publicly held groups were combined, the result was a loss of $176.4 million, compared with a net profit of $728.9 million in 2004 (fourth table — see below). Margin pressure and restructuring continue to hamper overall profitability.
Asia- and Europe-listed providers represented 32% and 6% respectively of total sales for the global group of 22 public companies.
Foxconn on a Roll
With consolidated sales in the first half up 61% in Taiwan dollars (71% in US dollars), Foxconn is cementing its position as the world’s largest EMS company by sales. The company is on track to become the first EMS company with sales over $20 billion. As long as Foxconn increases its consolidated sales by more than 23% in US dollars and there is reason to expect this outcome given the company’s first-half growth Foxconn should break the $20-billion barrier this year. If Foxconn’s consolidated sales in the second half remain flat with respect to those in the first half, 2005 revenue would total around $23 billion. (This assumes the same average exchange rate for the first and second halves.) Sequential growth in the second half would produce higher revenue.
This is the first time in MMI’s memory that Foxconn has released consolidated results for the first six months of a year.
In the first half of 2005, Foxconn earned net income of NT$17.42 billion on consolidated revenue of NT$362.71 billion for a net margin of 4.80%. Net margin declined from 5.75% achieved in the first half of 2004. Gross margin came in at 11.08%, down from 12.37% in the year-earlier period.
Through August, Foxconn’s nonconsolidated sales were up 58% year over year.
Flextronics and Nortel Change Terms of Outsourcing Deal
Flextronics (Singapore) and Nortel have agreed Nortel will retain its Monkstown, Northern Ireland, manufacturing operations, one of the activities that Nortel had originally planned to transfer to Flextronics as part of a larger outsourcing pact (July 2004, p. 1-2). According to Flextronics, this change will not have a material impact on its revenues, and the company still expects to generate more than $2 billion in annual revenue from the entire Nortel program once the remaining operations are transferred and vertical integration work is moved.
Since Flextronics is no longer purchasing the Monkstown operation, the company will save about $100 million in cash paid to Nortel. Total payments will now range from $575 to $625 million, of which $200 to $250 million is expected to be disbursed in 2006.
Nortel will establish a regional supply chain center in Monkstown for Europe, the Middle East and Africa.
Last month, Flextronics took over manufacturing operations and related activities of Nortel’s Systems House in Châteaudun, France. The transfer included product integration, testing, repair and logistics operations. Both companies continue to expect that Nortel’s similar operations in Calgary, Canada, and Campinas, Brazil, will be transferred to Flextronics by the end of Q1 2006 (June, p. 6).
Earlier, Nortel handed over its System House operations in Montréal, Canada; optical design operations in Ottawa, Canada, and Monkstown; and parts of repair and reverse logistics in North America and Europe.
In other news, Flextronics has completed the previously announced sales of Flextronics Semiconductor and 70% of Flextronics Network Services (June, p. 6). As a result of these transactions, Flextronics has received more than $500 million in cash and a 30% stake in the network services company resulting from the merger of FNS and Telavie AS. Flextronics Semiconductor went to the parent company of AMI Semiconductor.
Venture Makes Move on Metal and Plastics Side
Top-ten provider Venture (Singapore) has proposed an acquisition intended to broaden its capabilities in the supply of plastics and metal and add low-cost manufacturing. Venture’s subsidiary, Univac Precision Engineering Pte Ltd, has entered into a nonbinding memorandum of understanding whereby Univac aims to acquire 67.3% of the share capital of SEB Corporation Pte Ltd (Singapore). SEB designs and fabricates molds for plastic parts, produces metal stamped and plastic parts, and assembles metal and plastic components.
According to Venture, the proposed acquisition will complement the capabilities of its Univac subsidiary, a producer of plastic injection molds and plastics.
SEB operates a total of three manufacturing plants, one each in Singapore; Guangzhou, China; and Penang, Malaysia. Venture is one of SEB’s key customers. Others include Becton Dickinson, Philips, Applera and Japan Medical Supply. SEB’s diverse customer base spans industries such as medical and health-care devices, telecom, electrical and computer-related components.
The purchase price of the shares to be sold will equal about 1.3 times the selling stockholders’ share of SEB’s net tangible assets as of June 30, 2005.
Another electromechanical acquisition…Worldwide Manufacturing USA (San Bruno, CA), an engineering and quality control firm specializing in international contact manufacturing, has signed a letter of intent to acquire Shanghai Lizun Precision Mechanical Products Manufacturing Co., a die casting and machining factory located in the suburbs of Shanghai, China. The factory produces components for the automobile, motorcycle, telecom and home supply industries. Worldwide recently established its own electronics manufacturing company in Shanghai (Aug., p. 8).
Enics to Buy Assets from Elcoteq
Enics (Turgi, Switzerland) and Elcoteq Network (Espoo, Finland) have reached an agreement by which an Enics unit, Enics Electronics Beijing Limited, will buy certain assets and activities related to the manufacturing of industrial electronics in Beijing, China, from Elcoteq’s Beijing GKI Electronics Co. Ltd. The purchase allows Enics to move its industrial electronics activities out of Elcoteq’s Beijing plant, which has been providing Enics with manufacturing capacity in conjunction with Elcoteq’s 2004 divestiture of its industrial electronics business to Enics. The company will transfer these activities to its newly established plant in South Beijing. The new facility is expected to be fully operational during Q4.
Enics also announced that it has been granted a business license to start new operations in Beijing.
“It is clear that getting a sustainable part of the growing Chinese market in industrial electronics is one of our main drivers,” stated Markku Ahlbäck, Enics executive VP, operations. Having its own footprint in China will also give Enics direct access to a large array of highly competitive, local suppliers.
Meanwhile, Enics has completed its acquisition of Enermet’s production and repair activities in Jyskä, Finland (July, p. 5). Enermet is a supplier of energy metering and load management solutions.
Seeking partner for joint venture… A Canadian EMS provider is looking to combine with another EMS company who may be struggling. This opportunity would allow that company to continue to operate as part of a larger enterprise. Contact Dorian Barrs at Leantronics (Toronto, Canada). Email email@example.com.
New programs…Sanmina-SCI (San Jose, CA) and VirTra Systems (Arlington, TX) have signed a memorandum of understanding, under which Sanmina-SCI would exclusively provide manufacturability analysis, bid proposal and marketing support, and manufacturing services for VirTra’s advanced military training simula-tors….Insulet (Bedford, MA) has teamed up with Solectron (Milpitas, CA) for the introduction of an insulin management system. In collaboration with Insulet, Solectron provided RF engineering, PCB layout, mechanical design, PCBA board spins and manufacturing services….Also on the medical side, Kitron (Lysaker, Norway) has won a contract covering the delivery of complete equipment for blood analysis to CellaVision AB in Sweden. Also, Kitron has begun production of a new telecom product for Radio Components (Kista, Sweden). Finally, Kitron has secured a contract worth NOK 33 million (about $5.1 million) from Kongsberg Protech AS (Kongsberg, Norway), a mechanical production company owned by Kongsberg Defence & Aerospace ASA….Under a new contract from Chelton Defence Communications (Blackburn, UK), TTems (Rogerstone and Blyth, UK) is manufacturing PCBAs for CDC systems used for in-vehicle communication under battlefield conditions. The provider is working alongside CDC’s existing facility in Blackburn….The China Economic News Service reported that Taiwan’s Quanta Computer will produce LCD and plasma TVs in Hungary for Sampo, an appliance manufacturer in Taiwan. Contract manufacturing TVs in an EU member such as Hungary in Eastern Europe allows TV brands to avoid EU duties that would be imposed if the TVs were imported into the EU (June, p. 1)….Cardiac Science and Winland Electronics (Mankato, MN) have inked a two-year agreement, under which Winland will build PCB assemblies for Cardiac Science’s new hospital defibrillator and its defibrillator training device. Initial orders are valued at over $1.8 million.…A major defense contractor has awarded Northstar Technical a $496,661 contract for the production of command and control consoles for navy submarines. Northstar Technical (St. Johns, Newfoundland, Canada) is a subsidiary of Northstar Electronics (Vancouver, BC, Canada)….The Contract Manufacturing Division of Global ePoint (City of Industry, CA) has received a $5-million personal computer subcontract from Avatar Technologies for a major Mexican retailer….LaBarge (St. Louis, MO) recently announced four new contracts. For Sikorsky Aircraft, LaBarge will provide wiring harnesses, PCB assemblies and sensor assemblies for various models of UH-60 Black Hawk helicopters. Initial releases under long-term contracts total more than $9 million. New Brunswick Scientific has awarded LaBarge sole-source contracts valued at about $4 million to produce PCBs and subassemblies for laboratory incubator shakers. LaBarge will continue to produce electronic components for the Aegis radar and missile system under a $2.4-million contract from Lockheed Martin. Finally, a contract estimated at up to $2 million calls for LaBarge to produce an airport vehicle locator for Sensis Corp.
Reports Say Flextronics Plans 2nd India Plant
According to two reports from India, Flextronics has selected a site in the Tamil Nadu state for its second plant in India. The company has told MMI that it will continue to invest in India, a country that has drawn increasing interest from global providers (Aug., p. 2-3).
Flextronics will probably announce $30 to $50 million spending on a second factory in India and has selected a site in Tamil Nadu, Reuters reported Flextronics executive Peter Tan as saying during the Reuters Technology and Telecoms Summit in Tokyo. The facility will be located in Sriperumbudur, near Chennai, according to a report in The Hindu Business Line. This Indian source also reported that the Tamil Nadu Cabinet granted an incentives package that includes the state requesting special economic zone status for the facility.
Veris Acquires Mexico Facility
Veris Manufacturing (Fullerton, CA), an EMS provider in the low-volume, high-mix business, recently expanded into Mexico with the acquisition of a 60,000-ft2 facility in Rosarito, Mexico, 18 km below Tijuana. The company bought the assets and business of the electronics division of CYR Industrial, a former shelter operation.
The need to lower costs, of course, was one reason for this move. “We were getting pressure from our current OEMs to reduce costs,” said Bill McIlvene, president of Veris Manufacturing. But a scarcity of skilled workers also played a role. “It’s almost impossible to find techs and soldering people,” he said. From talking to his peers, McIlvene found “theyxre having the same problems. They’re all getting busy, and we’re fighting over the same group of people.” In contrast, Mexico offered Veris a more desirable labor pool.
Veris plans to operate its 7,500-ft2 Fullerton facility as more of an NPI center, with production taking place in Mexico. Even with the Mexico facility, Veris is sticking with its low-volume, high-mix niche. In Mexico, the company’s largest run is about 1,000 pieces, with the potential to go up to maybe 2,000.
The Mexico facility has a total of six SMT lines, and the company assumed a work force of 50 people there. Serving mostly tier-3 and -4 OEMs, this operation can process complex boards and is doing such work.
McIlvene purchased the company in 2001. It was started in 1988 as QCM, still the company’s official name. Veris Manufacturing is its trade name. Customers include Rockwell Collins, for which Veris does inflight systems work, and Newport Corporation, a supplier of photonics and laser technology and equipment.
When McIlvene bought the company, it was only doing about $250,000 a year. This year, Veris will finish up at $10 to $12 million, and the goal for 2006 is $15 to $20 million.
Editor’s note: Next month, MMI will explore the topic of growth among small providers in a feature article.
BreconRidge Expands Asia Presence
BreconRidge Manufacturing Solutions (Ottawa, Canada), an MMI Top 50™ EMS provider in 2004, has increased its Asia presence to include manufacturing with its acquisition of a 50% stake in AV Chaseway Limited, a Hong Kong company operating a manufacturing facility in Shenzhen, China.
Closed on August 1, the transaction resulted in a joint venture between BreconRidge and AV Concept (China) Industrial Co. Limited, a wholly owned subsidiary of AV Concept Holdings Limited, which is listed on The Stock Exchange of Hong Kong. The joint venture company has been renamed AV BreconRidge Limited.
“We believe that leveraging AV Concept’s PRC manufacturing experience and our design engineering expertise will enable us to achieve our objective of accelerating business expansion in Asia,” stated Bruce Rodgers, president and CEO of BreconRidge.
In the company’s previous approach to Asia, its Hong Kong subsidiary used a network of approximately 30 suppliers to carry out Asian engineering, supply chain management and turnkey manufacturing.
Besides EMS, other businesses of AV Concept Holdings include the sale and distribution of electronic components and the design and manufacture of MP3 players.
Other investments in China…In September, Circuit Service Inc. (Wheeling, IL) officially opened a plant in Changzhou, China. This is CSI’s first operation outside the US….Nam Tai Electronics (Tortola, British Virgin Islands) plans to purchase about 1.3 million ft2 of land near its existing facilities for future expansion. The company has signed a letter of intent with the Baoan District government in Shenzhen for this purpose. The land is located in the Guangming Hi-Tech Industrial Park, about 20 minutes by car from Nam Tai’s existing site. This park is being developed by the national government, which is expected to deliver the land to the company by the summer of 2006, after development is completed. Nam Tai plans to start construction of a new facility on the property before the end of 2006, with the first phase to be completed in the summer of 2008. The company expects that capital spending through the end of 2007 will exceed $150 million for construction of the new facility as well as replacement of machinery and production lines in the existing facilities….Universal Scientific Industrial (Nan-Tou, Taiwan), a top-10 provider in 2004, will add 25 lines to its Shanghai operations by year end, DigiTimes.com reported.…Scanfil (Sievi, Finland) has expanded its Suzhou plant by about 1,700 m2 and is adding a new building of about 6,000 m2 at its Hangzhou site.…Hallberg-Sekrom (Täby, Sweden) is starting up a business in Wuxi, within China’s Yangtze River Delta, 130 km northwest of Shanghai. This move gives the company its first location outside of Europe, where it operates in Sweden and Estonia. To indicate this change to a global contract manufacturer, the company has changed its name to HSF Group. It offers design to high-volume production in mechanics, electronics, box build, and after-market services. Products built by the group include assembly, soldering and test fixtures and automation equipment.
More facility projects…Sypris Electronics (Tampa, FL), a subsidiary of Sypris Solutions, has opened a 10,000-ft2 facility dedicated to the production of spaceflight electronics. The new space facility is part of Sypris Electronics’ 318,000-ft2 engineering and manufacturing operation in Tampa. Over the past decade, Sypris Electronics has delivered thousands of space-qualified assemblies to its aerospace customers. For example, Lockheed Martin selected Sypris to produce key electronics assemblies for Lockheed Martin’s commercial and military satellites. “Sypris Electronics is committed to increasing its presence in the commercial and military space markets,” stated Bob Sanders, president of Sypris Electronics….Partner-Tech (Malmö, Sweden) has opened its newly expanded plant in Sieradz, Poland. The plant offers a total area of 6,000 m2, double its former capacity….I. Technical Services has moved into a new 22,000-ft2 facility in Alpharetta, GA….Key Tronic Corporation (Spokane, WA), which does business as KeyTronicEMS, has purchased a 66,000-ft2 manufacturing facility in Juarez, Mexico, to replace a previously leased facility. The new facility allowed the company to shift operations from Las Cruces, NM, to Juarez….According to the online European source evertiq, HSF (see previous section) is taking over a portion of a former Flextronics facility in Gotland Island, Sweden.
Company news…At a special meeting held this month, Elcoteq shareholders decided to convert the enterprise to a European Company carrying the designation SE (Societas Europaea). Elcoteq’s board of directors proposed a conversion plan last year (Oct. 2004, p. 7). Conversion to an SE will allow the company to operate with a single corporate structure throughout the European Economic Area instead of having several separate subsidiaries as currently required. Reported benefits of the SE form include streamlined decision making, a reduction in administrative costs and less trouble making cross-border M&A deals. Shareholders approved changing the company name to Elcoteq SE, effective Oct. 1. …PartnerTech has changed the structure of its business units. They now consist of industry/telecom headed by Niclas Detterfeldt, terminals/machine solutions under Anders Ingerstedt, and medical equipment headed by Mats Bojesson….Jurong Technologies Industrial Corpn. Ltd (Singapore) has set up a wholly owned subsidiary, JHT Industrial Jaguariuna Ltda, in Brazil for the purpose of contract manufacturing.
Celestica Allies with German Provider
Celestica (Toronto, Canada) has expanded its offering to the German market through a new alliance with manufacturing logistics & services (ml&s), a German EMS provider.
This alliance will allow Celestica and ml&s to build on their respective strengths. Celestica will offer German OEMs a global manufacturing network with options for low-cost volume production, while ml&s will provide a local source of NPI services and low-volume production.
With time, the parties expect their partnership to focus on other Western European OEMs as well.
Located in Greifswald, Germany, ml&s was formerly a Siemens manufacturing operation, which became independent in 2002. Employing about 275 people, the German provider has a long-term partnership with Siemens, which still maintains operations in Greifswald for its business in access networks. Among other customers listed by ml&s are DeTeWe, FEAG, Signalion and Vaillant.
Financial news…Jabil Circuit (St. Petersburg, FL) reported that its revenue increased 25% year over year to $2.04 billion in the fiscal Q4 ended Aug. 31. Net income for the quarter grew 59% to $70.5 million compared with the year-earlier quarter. Diluted EPS (GAAP) increased by 55% from a year earlier. Core earnings for the quarter went up 40% year over year, while core EPS rose 37%. Fiscal 2005 sales grew 20% over the prior year to $7.52 billion, as net income increased 39% to $231.8 million. For fiscal 2006, Jabil expects to increase revenue by 16 to 24%, indicating a sales range of $8.7 to 9.3 billion. Guidance for EPS (GAAP) calls for growth of 21 to 32%….For the fiscal year ended July 3, LaBarge’s sales rose 39% to $182.3 million, and net earnings grew 58% to $10.9 million. The company’s Pittsburgh operation, acquired in February 2004, contributed less than a half year of results in fiscal 2004. Fiscal Q4 sales increased 10% year over year to $45.1 million, while net earnings went up 14% to $2.8 million. Also, LaBarge’s board has renewed its authorization for repurchase of up to one million shares of the company’s common stock over the next 12 months. Recently, LaBarge joined the Russell 3000 Index, the Russell 2000 Index, and the new Russell Microcap Index.…For the fiscal year ended June 30, Sparton (Jackson, MI) reported sales of $167.2 million, up 4% from fiscal 2004. Net income totaled $8.1 million, including an insurance settlement of $5.5 million pretax; in comparison, fiscal 2004 produced a loss of $2.0 million. Q4 sales in fiscal 2005 amounted to $45.9 million, down from $47.8 million in the year-earlier period. Net income for Q4 fiscal 2005 also benefited from the settlement and equaled $4.9 million, compared with $1.5 million a year earlier. In August, Sparton’s board approved a plan allowing the company to repurchase up to $4 million worth of its common stock over the next 24 months. The board also declared a cash dividend of $0.10 per share….For the quarter ended July 31, SigmaTron International (Elk Grove Village, IL) recorded sales of $21.3 million, slightly below $21.5 million reported for the year-earlier period. Net income decreased to $165,067 in the July quarter from $1.0 million a year earlier….Three-Five Systems, or TFS (Tempe, AZ), has filed a voluntary Chapter 11 bankruptcy petition as part of actions taken by the company to sell off its assets and subsidiaries and wind up its business. The company is attempting to preserve its value for shareholders. TFS’s foreign subsidiaries it has an EMS operation in Penang, Malaysia are not included in the filing. A US subsidiary, TFS Electronic Manufacturing Systems, has already filed under Chapter 11 in order to sell the assets of TFS’s operation in Redmond, WA (Aug., p. 7). According to TFS, its management continues to work with potential interested buyers for various assets owned by the company….CTS Corporation (Elkhart, IN) has entered into an agreement to sell its Low Temperature Cofired Ceramic (LTCC) product operations to American Technical Ceramics (ATC). The sale includes production equipment and inventory associated with the LTCC product line, but excludes the West Lafayette, IN, facility where LTCC operations have been conducted. CTS said the LTCC business, whose annual sales are less than $8 million, is not strategic to the company. The transaction is not expected to have a material impact on 2005 results. CTS plans to sell the West Lafayette facility once the transfer of equipment to ATC is completed. According to CTS, the divestiture will allow management to spend more time on growth areas of its business, which includes EMS….According to the Lithuanian news agency ELTA, the Lithuanian Competition Council gave Hermis Capital, a Lithuanian private equity firm, the go-ahead to purchase up to 100% of Kitron, a Norway-based EMS provider. As of Aug. 15, a Hermis fund held 35.6% of Kitron shares….Suntron (Phoenix, AZ) is transferring the listing of its common stock to the Nasdaq SmallCap Market.
People on the move…Kiran Patel, CFO and executive VP at Solectron, is leaving the company to become CFO for Intuit. Warren Ligan, senior VP and corporate controller at Solectron, will be assuming Patel’s role on an interim basis while the company searches for a replacement among internal and external candidates….Pay Cher Wee has resigned from his position as CFO of top-ten provider Venture. Soo Eng Hiong, the company’s senior VP for business and technology development, will oversee the finance function until a suitable replacement is named….Elcoteq has promoted Harri Ojala to president of Europe, one of the company’s geographical areas. Most recently, he was director operations, NPI and after-sales, Europe. In addition, Mitchell Schoch, former VP sales and account management for Solectron, has been appointed to the newly created position of VP sales and marketing, Elcoteq Americas. Bill Coker, the unit’s former sales and marketing director, has moved to the new position of director marketing and business development to focus on expansion of the service offering. Elcoteq Americas also has named Miguel Angel Perez Andres as business development director for Latin America. He comes from Celestica, where he was business office director for Brazil….NOTE AB (Norrtälje, Sweden) has hired Arne Forslund as its managing director and group manager effective Nov. 1. Most recently, Forslund served as operations director, Europe for Teleflex Morse. He is replacing Kjell-Åke Andersson, who will be at management’s disposal.…SMTC (Toronto, Canada) has appointed Wayne McLeod as non-executive chair of the board. From 1980 to 1999, he was president, CEO and chairman of CCL Industries. McLeod serves on the boards of several other companies and two business groups. …At Reptron Electronics (Tampa, FL), William Kullback and Kirk Waldron have been elected to the board of directors in place of Mark Holliday and Steve Scheiwe, who resigned from the board due to time constraints and other commitments. Waldron previously served as interim president of SMTEK International, which was acquired by CTS. Kullback is CFO of IntriCon, a provider of microminiaturized medical and electronic products. His previous experience includes CFO positions at MedSource Technologies and PEMSTAR….Harpal Gill, Ph.D., has joined Fabrinet (Bangkok, Thailand) as senior VP of operations and managing director of Fabrinet’s New Jersey, USA, subsidiary. Dr. Gill’s background includes serving as senior VP of engineering for Maxtor in the US and VP of engineering for Read Rite in Thailand.…Simclar Group (Dunfermline, Scotland) has appointed Carl (Zhenqi) Gao as GM of its Tianjin, China, facility and Douglas Kirkaldy as business development director for the facility.…Shera International (Shanghai, China) has named Jason Jones its president and GM. He joins Shera from Motorola, where he was director of corporate initiatives. Shera’s holdings include EMS provider Shera Technology (Kunshan, China)….PRIDE Industries (Roseville, CA) has hired Kirk Olson as director of sales for its manufacturing and logistics services (MLS) business. The company bills itself as the largest US employer of people with disabilities. The MLS business uses a 177,000-ft2 facility.
In an ideal world, the transition to RoHS compliance would be orderly. OEMs would give themselves plenty of time to convert their products for compliance. But real-world events often do not unfold so smoothly, and indications are that there will be a rush to meet the RoHS deadline of July 1, 2006. The cover story of the July issue asked whether the EMS industry will be able to meet this rush to compliance. The answer has not yet emerged. But one thing is for sure. The surge in demand for compliance services will put the industry in pickle.
Providers will face a spike in demand for compliance services, particularly those that involve engineering. This eventuality puts them in a dilemma. Do they invest in engineering and other resources to satisfy a short-term demand? Or do they decide against bringing on people who might end up idle after the RoHS deadline has passed? But even if they do opt to staff up, how many people should they add when the demand curve is still an unknown?
More than one provider has told MMI that it doesn’t make sense to put in resources that don’t have a long-term future. Can you blame them for this view? Yet it raises the possibility that not every OEM in need of compliance services will find them available at crunch time.
Still, the situation is not entirely bleak. Take Celestica. The company, which started preparing for RoHS conversion in 1999, has provided RoHS training to its engineering staff and has augmented that staff to support the influx of customer requests for RoHS services. Celestica believes it’s in a position to handle pretty much anything that comes its way. Sanmina-SCI has taken a flexible approach of using both internal and external resources, on-shore and off-shore. By outsourcing some of its engineering-oriented activity, Sanmina-SCI has the ability to add temporary resources that won’t be needed after RoHS conversion.
But even Celestica admits that it may be squeezed by OEMs that come knocking on its door because their existing providers won’t be ready for RoHS in time. If there is a shortage of resources, providers will ensure that they take care of their current customers first.
MMI believes that at least some OEMs are still in the evaluation or planning stages for RoHS compliance. The longer they wait to start the conversion process, the greater their risks. And some products will take longer than others. If there weren’t so many companies involved, an OEM might be able to wait until Q4 or possibly later and still meet the deadline. But if too many OEMs wait until then, demand for conversion services may well outstrip supply.
The EMS industry should endeavor to even out this upcoming demand as much as possible. Short of hiring lots of permanent or contract engineers, that’s the only way to address the problem. Providers should notify all customers who have not started that if they don’t utilize resources soon, resources may be unavailable as the deadline nears.