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From the Editor:
What Is It Worth?
December 31, 1969 |
Estimated reading time: 6 minutes
Allow me to start our conversation today with a few seemingly random, seemingly incongruous facts I've picked up over the past few months. The Amish population in the U.S. is a leading-edge, early adopter of solar power and photovoltaics as industrial and consumer products. The average American owes about $31,000 per car, which is accumulated debt. This means the average American is not driving a car worth anything close to thirty thou. Union membership in the U.S. is on the rise, even outside of the service and hospitality industry, a trend that hasn't been seen in about 25 years. What, you may ask, do all these things have to do with each other? And why do they matter? Let's discuss.
I gather these factoids from radio presenters, news, and second-hand sources like informal tidings of the U.S. economy, and most specifically of the electronics design, assembly, and test industry. They express some interesting directions for the future, and some troubling facts about our spending culture. If I were to owe $26,000 on a car loan, I would find my modest $15,000 to $20,000 car bitterly depressing on the commute each morning. I believe this carelessness with worth, value, and purse strings was in a much simplified way how we guided this economy into a subprime mortgage crisis. This is the troubling point that we may have developed an American culture where no amount of business and profits will help us, because these profits will be squandered immediately and debt will suck good businesses into a black hole. Already a shrewd and intense business, electronics manufacturing offers no buffers to save companies from this track. If we must experience a sluggish, recession-like economy from the subprime fallout, let's at least seriously learn from it, and not repeat. Lean manufacturing and process controls will reduce wastes and increase quality output. This means no, or few, recalls. Recalls can spell death to a vulnerable company. Most importantly, make controlled, targeted, significant investments with high probability of returns.
And this brings us to my point about the Amish. Seriously. As it turns out, the greater Amish community sees a solar future. They consider solar power a clean, sensible, and safe source of light, for example. Which is a good example to proof against a rather abstract statement that adherence to a strict set of knowledge does not preclude diversification and growth. Solar power, just like fields and livestock that normally are associated with this culture, is renewable and sustainable, not consumed. On top of that, solar cell manufacturing is exactly the kind of field in which electronics manufacturers' knowledge sets apply.
Bringing the mature SMT and thru-hole manufacturing industry into these high-growth, high-innovation, high-potential young sectors can benefit U.S. manufacturing. EMS providers producing solar cells alongside the electronics that make these cells useful take on more risk, but as early adopters they may fare better than those standing still. If more consumers and businesses take up solar products, the industry will be a high-profit, largely home-grown expansion of electronics manufacturing. News of technology upgrades pops up daily on the photovoltaic front. For example, IMEC announced a single-junction GaAs solar cell on a Ge substrate with 24.7% conversion efficiency. The efficiency was measured and confirmed by the National Renewable Energy Laboratory, USA (NREL). GaAs solar cells are used in satellite solar panels and earth-based solar concentrators. Materials provider Umicore produced the Ge substrate through an optimized manufacturing technology aimed at improving the intrinsic germanium crystal quality. DEK, on the equipment side, launched a new strategic business focus in the solar energy market, bringing the industry on par with DEK's semiconductor and SMT segments. Beyond this, in components and subassemblies, IPG Photonics Corporation purchased more than 100 U.S. patents, with more than 340 foreign counterparts, by acquiring a photonics patent portfolio from British Telecom. IPG invested in current and future photonics components and systems, devices, and techniques commonly used throughout the photonics industry. Finally, in thermal processing, BTU International Inc. is taking on several initiatives, including the formation of a new business group for its alternative energy equipment business, the addition of key talent, and the establishment of international solar research and process application centers. This much investment should set off a lot of alerts.
This entire conversation has revolved around value. Value is not money a product could cost more but provide lower profits than its competition. In the same way that a $17,000 midsize sedan will never be valued at $35,000, though you may end up paying that much for it. Value comes from smart business operation, and sectors where profits are still feasible. So we come to the final disparate news flash. Unions. Union growth in the U.S., though marginal, was enough to surprise many analysts this year, but the numbers suggest something we in the electronics industry have been aware of for some time. If you plan to manufacture in the U.S., you must have a product that supports the higher labor and operating costs of domestic manufacture. You must invest in your workforce. Unions at their best are a sign of skilled, competent work. Bad union/labor relations can tear an industry apart. A U.S.-made product must be worth more than one made in a low-labor-cost region, not just cost more. It should announce to the buyer military, consumer, industrial manufacturer, medical laboratory, etc. that the cost of fair pay and compensation not only is worth paying for, but that it is essential to this product. If you can achieve this with a cell phone, my hat's off to you. More likely, you can achieve it with a solar-power converter for highway lights, or a sensor array for military surveillance equipment, or a power converter for an ambulance defibrillator.
Venture Outsource published research from IDC and Deutsche Bank Equity Research that confirms these assertions. Deutsche Bank divided ODM and EMS markets into seven segments, including computers, consumer devices, servers and storage, and emerging (automotive, medical, and industrial), among others. Computers and consumer devices, as you may expect, are the largest segments, eating up about 60% of all EMS/ODM production in 2006. Consumer and computer segments also are growing fastest, but profits and production suffer from lowering average selling prices (ASPs) and market saturation. This information is echoed around the industry by most analysts. But look ahead five years, and the medical, automotive, and industrial assemblies are driving growth. Deutsche Bank refers to these markets as "relatively untapped" with a "small base." Revenues in these emerging segments are slated for a 5-year compound annual growth rate (cumulative) of 18.1% top among the seven segments.
Should you wish to see my sources for the above news items, I could, perhaps, dig them out from the newspaper recycle bin, an archived news broadcast, or relentless Internet searches. Perhaps. I'll stress the point that these are not accepted terms of economic measurement. Federal interest rates will not be decided based on the fact that Amish barns have solar panels gracing their roofs. These are food for thought, the cultural and business intelligence that floats out of the daily information onslaught and, sometimes inexplicably, sticks. Reminders of things that we all understand make good business sense avoid useless debt, invest in future growth no matter how mature the technology, and aim to make a profit within the bounds of your manufacturing environment.
Meredith Courtemanche, managing editor, may be contacted at mcourtemanche@pennwell.com.