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The I-Connect007 Editorial Team recently spoke with John Vaughan, Greg Halvorson, and Brett McCoy of Summit Interconnect about their capital expenditure (CapEx) strategies. They discuss the challenges they face when planning CapEx after acquiring fabricators with different capabilities, and the need to have dedicated funds ready for expenditures each year.
Nolan Johnson: Let’s start with the recent growth at Summit.
Greg Halvorson: Yes. Summit is growing both organically and through acquisition. With the tailwinds in the industry, we're typically following the approximate same percentage growth as in the industry in general. Specific to our core market in defense, the growth is more pronounced.
Johnson: That leads us into our discussion on capital expenditure. There are two flavors to capital expenditure thinking for you. One of them is what you need in order to integrate the different companies you're bringing together through acquisition, and then what you need in order to meet changing market opportunities. Is that a fair assumption?
Halvorson: Yes. We divide our expenditures into growth CapEx, and maintenance CapEx; the driver behind the majority of our decisions are what we would foresee as gaps in the industry where we can provide services that we see some of our competitors are weak in, as well as just listening to the customer and following the direction of their technical roadmaps and where they're going, both via capacity requirements as well as technical requirements.
Johnson: Let’s start with the growth drivers first.
Halvorson: On the growth side of the business, we're really looking at the type of equipment that provides capacity to meet our customer's product needs. That is a bit of a moving target. With the talents of people like our VPs/GMs Brett McCoy in Chicago, Jack Evans in Anaheim, Mike Graves in Santa Clara, Barry Ling in Toronto, Bill Sezate in Orange, CA, and the rest of our team, they're really identifying equipment that is multi-use. So not only can we target an immediate need or a need that's in the imminent future, we also look to position as a company that is flexible enough to provide a wide range of technology.
John Vaughan: Greg alluded to customer roadmaps, and increasingly it's all about miniaturization. So that drives a lot of our decisions as we need to process even more complex via structures and smaller space and trace width and miniaturization to meet all the size, weight, and power reduction requirements, particularly by the military sector, but also by the electronics industry in general.
Barry Matties: When you start looking at the equipment, I understand market opportunity and adding capacity, but in the decision-making process, how important is the smart process or smart factory consideration as well as cycle time reduction? Where does that fit into your CapEx strategy?
Halvorson: I think both of those aspects are very important. Obviously, there's a labor shortage out there, so we're always looking at ways to maximize productivity, create a smarter factory, and create tools that build-in their own preventive maintenance programs through online monitored equipment performance.
Matties: As you're ranking your capital equipment list, does that go to the top of the list?
Halvorson: No. I think the more important thing for us is productivity, reliable service, and proven tools. For the tools we install in the factory, we're looking for a supply base that is stable. When it comes to the smart factory, there's a little bit more of a risk profile because it's still in its infancy. When we're looking at the type of products that are being manufactured, especially in defense, they're not usually extremely high volume, so our equipment has to have a lot of flexibility.
Matties: What about the life cycle of equipment when you're looking at an expense? Do you have a range of service expectation for that piece of equipment?
Halvorson: That’s really tough to answer because it's all over the map. Some of the equipment is targeted at a particular reliability offering to the customer. Some of the customers are adapting and adopting these types of requirements into their delivery requirements, but without it being a widespread industry requirement, it's hard to say if it's going to be something here to stay. We're very careful on that, and we'll also utilize outside services to bridge that gap in bringing the product or the capital expenditure in-house until the longer-term market need is clearer.
To read this entire conversation, which appeared in the October 2021 issue of SMT007 Magazine, click here.