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One of the best things about productronica was meeting people who I have corresponded with and those whose articles or presentations I have read or seen but have never actually had a chance to chat with. Francesca Stern is one such person and it was a true pleasure to sit down and chat with her in the EIPC booth.
Patty Goldman: Francesca, why don't we start with you telling me a little about yourself and what you're doing?
Francesca Stern: I've been in the electronics industry on and off for more than 30 years. My career started with quartz crystals where I was very much on the edge of the electronics industry. I became more involved with the industry when I started as a consultant with BPA back in 2000, and for the past four years I've been working as an independent. It's been a very liberating experience.
One of my key activities is keeping track of the electronics and printed circuit board industry in terms of both production and markets, tracking the growth (or lack of growth) in the different sectors, and in the different regions. I have been monitoring monthly the UK printed circuit board industry, and alongside that I collect data about electronics production in the UK to see how the electronics production matches up with the markets for printed circuit boards. Of course, the market for printed circuit boards in the UK is distorted by the volume of imports that come in. However, value-wise I would say quite a significant amount, £40 million worth, of circuit boards are exported by the UK printed circuit board industry.
Goldman: That sounds like a lot of export.
Stern: Well that's small volumes because this is high-value stuff. On the other hand, we import PCBs to the value of over £100 million. Total PCB production in the UK is about £125 million every year. Net imports, i.e., subtracting the exports, comes to about £90 million, so we are looking at a market in the UK, of around about £200 million, maybe a bit more maybe a bit less. Most of the imports are of course low value, higher-volume boards that go into consumer and industrial applications and we also import for the automotive market. Growth this year has been good. But some of that can be accounted for by the increase in material prices, particularly copper foil, and that of course has driven increases in printed circuit board prices.
Goldman: We can always bring up the subject of Brexit here; how is that going in terms of affecting the industry?
Stern: One impact on the industry has been the fact that the pound adjusted its value after the Brexit vote, and that was probably an adjustment that was long overdue anyway. In one way, it's made it easier for people to export. On the other hand, it's harder on the printed circuit board industry who import their raw materials, because as well as the natural increases in raw materials they've also got an increase in price associated with the change in currency.
Goldman: You said on the other hand it makes the exports easier?
Stern: That is purely from the perspective of a weaker pound making the products more cost competitive. At a more general level, it's difficult to say; I've spoken to some people who say Brexit won't affect them at all, and other people say it will. They say they've got very good customers in mainland Europe who are a little bit annoyed that the UK voted Brexit and they may be looking elsewhere for their products in the future. Once the negotiations are complete then there is a possibility that the UK may lose some of its customers. Nobody knows. There's a huge amount of misinformation in the press.
Goldman: I would guess there's a huge amount of speculation going on.
Stern: Yes, the UK could say no trade deal and revert to WTO rules, to which one could say, “Well, that's going to affect the EU more than it will affect the UK,” because in terms of all trade in manufactured products, Europe's exports into the UK have been increasing whereas our exports to Europe have flattened. Meanwhile our exports to the rest of the world, with whom we trade under WTO terms anyway, for the most part, have increased. That's the optimistic position. The pessimistic position—and the pessimists say we will get hammered—is that we will lose jobs and nobody will want to trade with us. Only a percentage of UK trade, I believe it is about 12.6% of our GDP, was accounted for by trade with Europe last year. Now, if you think about that, if we lose 10% of our trade with Europe, that's 10% of 12.6% or 1.3%, which means as a total percentage of our GDP it isn't an awful lot. Although, it will affect some sectors and some industries more than others. One could go on speculating for months on this, but you know we'll just have to wait and see.
Goldman: How’s the show been for you?
Stern: I always enjoy coming to productronica and electronica. It's been great to see so many familiar faces. I'm slightly concerned about the fact that there seem to be fewer stands this year that are directly associated with the PCB and the EMS industry, and the stands that are here are companies that can obviously afford it and are still large. Some people are saying they are not going to do it again next year. Now, from my perspective, even if you don't do any business or get any business, productronica is a great networking event. You can see what everybody's got to offer and you can talk to them; you don't have to do a deal now, but it's there in the back of your mind that there's this company doing this, which might be of use or of interest to you or you can tell somebody about later in the day.
It's a great show. I talk to people and I find out how the industry is going from their perspective. You'll find that one is having a great year and they'll tell me the market is great, but please don't go telling anyone else because we don't want them hopping on the bandwagon. And then some people are so-so because…and there's always a ‘because.’ Maybe they haven't thought far enough ahead or they haven't got the right products at the right time. It's always interesting.
Looking at the laminate market is interesting as well. Hot topics this year are IMS or metal back substrates, and the very high-frequency, high-performance laminates that are still very much the focus of for the communications segment and for radar in automotive.
Goldman: How about thermal management?
Stern: Thermal management is very important for automotive and power electronics.
Goldman: Is automotive a big industry in the UK? Is it a significant player?
Stern: Europe produces about 17 million cars a year, and in the UK, we produce nearly two million. UK fabricators make small volumes of PCBs for the automotive industry for development and prototypes. As soon as it goes to any volume it will go off-shore. With all the new things that have been happening—the increase in sensors, safety aspects, radar—the players who still make for the PCB industry (and not all the fabricators in the UK industry make for the automotive industry) are reasonably happy at the moment. There is a lot of development ongoing, and in particular there is a push for all-electric cars driven by concerns for the environment. So we will be seeing more opportunities in future.
Goldman: Have you seen or heard anything about the copper foil shortage?
Stern: There has been a lot in the press about the copper foil shortage and that started about a year ago. But then demand for PCs and laptops declined, the demand for the foil for the lithium batteries that power those devices flattened off a little bit and this slightly eased the foil shortage. The prices will never come down again, because there's still not enough capacity, and the portable device market that needs the lithium batteries is picking up. Once that happens that's going to pile pressure on the copper foil market again.
Goldman: The thing with the copper foil shortage was, you would say, “Why don't they just start producing more foil?” But apparently these producers are pretty much at capacity and that's that.
Stern: Yes, they are maxed out and they'll get more money for the foil for lithium batteries. The PCB industry is a lesser player by comparison.
Goldman: We’re picky, and we want the lowest price.
Stern: That's why some of the fiberglass fabricators dropped out, simply because there was so much more money in making bulk, lower specification fiber for insulation and fiberglass composites.
Goldman: So there goes the fiberglass, the copper foil and probably some of the resins also. Are we going to see some huge price increases in laminates one of these days with this this perfect storm coming of higher prices for resins, copper foil and glass?
Stern: We are probably looking at 20% price increases coming up, and that will possibly stall the market, but maybe not if the market remains strong. I've always felt that the PCB industry is the poor relation of the industry. You look at the semiconductor industry; there are billions of dollars in that industry, and they spend huge money on their stands, huge investment. The PCB supplier always gets squashed. They suffer from the bottom end for the raw material prices and they suffer from the top end from the customer trying to knock the prices down. I would say it seems to be easier for the OEMs to do that with PCBs than it is with semiconductors who have managed to keep their prices down to a certain extent by increasing wafer size and shrinking die size. You can get more product per wafer and you can handle the cost that way.
Goldman: I wonder if the OEMs that get frustrated because they can't get the pricing they want, if they ever think about starting shops internally again? Going back full circle.
Stern: I think when you look at the investment that's necessary to start up a PCB shop it is really very costly. One of the things that the UK PCB industry has struggled with is the amount of money you have to spend on updating just one piece of equipment, or one stage of the production line.
Goldman: The margins are thin and people don't have a lot of money.
Stern: No, they have to borrow and if the market drops then they can't make their loan repayment, and there you have it.
Goldman: We'll see how that all plays out, right?
Stern: We will. The next few years are going to be very interesting. It’s always interesting. Even if it's sometimes sad, like the whole dotcom crash.
Goldman: Thank you so much for your time. I really appreciate it.
Stern: Thank you, Patty.