15th Annual Fleck Connection Congress
The 15th annual Fleck Connection Congress, sponsored
by Fleck Research and Global Conventions—divisions of Global Connector
Research Group—was held October 27-29, 2003, at Caesar’s Palace
in Las Vegas, Nevada.
Despite
the fires in Southern California, which wreaked havoc with airline
schedules, the conference was attended by a couple hundred senior
executives of the connector industry from the United States,
Canada, Germany, France, the United Kingdom, China, Japan, Taiwan,
South
Korea, Switzerland and Singapore.
Summarizes the pertinent issues and topics addressed
by the senior executives who were speakers at the FCC.
Distinguished Speakers
Addressing this year's FCC were the following industry
executives, listed in sequence of appearance:
Summary
Having Survived 2001 to 2002 -- Now, What is
Ahead for the Industry
Fleck Research declared that any analysis of 2003 starts with
China. He noted that of 83 companies manufacturing in China interviewed
by Fleck Research in October, 2003, 86% reported increased results
and only 3% suffered a downturn.
Production of connectors, cable assemblies and backplanes in China
has grown from $7.387 billion in 2000 to an estimated $11.7 billion
in 2003, an upsurge of 21.5%. Price erosion is rampant.
Among the positive trends within the interconnect industry, Fleck
pointed out, are semiconductor sales in 2003 up 10.2% and forecast
to climb 16.8% in 2004. Notebook sales are increasing 75% and motherboard
sales are up 35%, he said.
In other areas, handset sales will expand a minimum of 20% to a
projected 474 million units, while by 2004, 241 2.5G phones will
ship (up 42%), along with 48 million 3G phones (140% growth). Digital
camera sales are up 63% and desktop shipments are predicted to grow
8.9% in 2003.
“As each day goes by,” Fleck concluded, “It becomes
clearer that we are not going to slip back into another recession,
and that the economy is making a slow recovery.” 
Wireless Communication in Connectors
Tatsuya Arai, manager of Hirose’s Overseas Business Division,
addressed the conference on wireless communication in connectors.
He commented that Hirose’s revenue for the last fiscal year
translated to US$600 million. Hirose’s growth has been constant,
Arai declared, expanding over 50 times in the past 25 years.
Communications and computer servers currently are receiving heavy
focus from Hirose, Arai stated. It is in those two areas, he noted,
that wireless technology is really booming. He compared wireless
technology to the remote control on a television set or keyless entry
for automobiles -- a convenience that users now take for granted.
Arai displayed his own cellular phone, which he pointed out may
be used for Internet connections. He also showed a new camera phone,
which he said is becoming quite popular in Japan, and predicted that
the home office would be the next big arena for wireless communications.
As the wireless industry market matures, Arai said, more variations
in product categories will be available.
Understanding Distribution’s Value
Aside from a slight hiccup earlier this year, the annual rate of
industry turnover in distribution has enjoyed a steady climb, according
to Robin Gray, executive vice president of the National Electronic
Distributors’ Association (NEDA). Monthly sales began an upward
spurt in July, 2003, both for the industry’s top 20 distributors
and the remainder of the companies.
Gray spoke of the industry’s Value Proposition Study, a landmark
project undertaken to quantify dollar value. The study was launched
to respond to the threat of disintermediation and provide value to
NEDA members.
The survey was inaugurated in 2000 to identify the perceptions of
the value that distributors bring to the electronics supply chain.
It is intended to identify and measure the value created by electronic
distributors for customers and suppliers. Preliminary findings from
customers include inventory management and local presence, on-time
delivery, multiple product lines and long-term relationships.
Savings to customers are quantified as a reduction in inventory
and cost savings due to increase in convenience when using a distributor.
Data was collected on different variables such as purchase volumes,
lot sizes, fill rates, lead time and expediting costs, transportation,
negotiation and switching expenses.
By using a distributor, Gray declared, customer savings range from
15% to 50%, depending on the size of the customer, purchasing methods,
lead times, holding costs, etc.
Marketing & Technology Trends in Mobile Communication
Ulrich Wallenhorst of Harting Electronics opened his presentation
with a short history of telecom, beginning with Alexander Graham
Bell’s invention of the telephone. When the first commercial
switchboard began operating in 1878, it served 21 phones on eight
lines, consigning many people to a party line.
Three years later, Bell received a patent for the metallic circuit,
the concept of two wires connecting each phone, greatly reducing
the amount of noise and making long distance possible, Wallenhorst
noted. Automatic switching followed, then coast-to-coast transmission
thanks to Lee De Forest’s three-element electronic tube.
The cellular telephones we know today had their genesis in Tokyo
in 1979. In 1983 Ameritech started the first cellular network in
the United States. Today, nearly a billion subscribers use cell phones.
The history of mobile communications shows a permanent increasing
number of electromechanical and electronic hardware components and
devices, Wallenhorst declared. The 3G rollout has been delayed due
to economic conditions, but bandwidth and service needs remain. The
future trend to 4G mainly is an integration process of different
technologies accompanied with still higher speed requirements, he
concluded.
Interconnect Fusion
Semiconductor packaging was the focus of the presentation by Bill
Miller, president and CEO of Interconnect Systems, who spoke on “Interconnect
Fusion: The Impact of Fine Pitch High I/O Semiconductors on the Interconnect
Cost Model.”
Miller reflected on his 40-plus years in the interconnect industry
as a period of growth and change. He noted that the changes of the
last three decades have been driven by semiconductor technology.
U.S. companies held the majority of the worldwide connector market
until the 1990s, he said. Today, five of the top 10 connector companies
are foreign-based. Automotive electronics has driven connector growth,
with 31% of the top 10 connector companies’ sales in 2003 being
to the automotive industry.
Today, connectors are more specialized, and designed for special
applications, Miller declared. He told of starting a company in IC
packaging which could bring connector experience to the industry.
ISI has the knowhow, the enabling technologies and the products
to implement a cost reduction module program, Miller stated. ISI
designs and manufactures a broad line of high lead count IC packages
utilizing printed circuit board interconnects, unique molding capabilities
and thermal management solutions.
Electronics & Air/Ground Support in Afghanistan & Iraq
A late addition to the speaker lineup -- and one of the most well
received -- was Air Force Colonel David M. Neuenswander, commandant
of the U.S. Air Force Air Ground Operations School at Nevada’s
Nellis Air Force Base.
“Iraq looks like a place that’s been ignored,” the
colonel -- who recently returned from that country -- told the FCC
delegates. The United States is taking a “big stick” approach
toward rebuilding the war-ravaged nation.
Among the hazards involved in this mission, Neuenswander declared,
is that “too much intelligence is made available to the enemy
via the media.”
The colonel conducts classes in close air support for the Army and
Air Force during training exercises at the Nevada base. He noted
that the latest version of the military UAV (unmanned aerial vehicle)
is a “great system, very good at reconnaissance.”
Neuenswander, a graduate of the Air Force Academy, remarked that
one of the primary lessons you learn in the armed services is that “you
can do a lot of this if you don’t quit.”
A Wall Street View of the Electronics Supply Chain
Matt Sheerin, a senior analyst in equity research for Thomas Weisel
Partners, offered what he termed “quick thoughts on the economy”.
He noted that most end markets seem to be picking up -- at least
seasonally -- and spending on information technology is on the mend.
“Pricing is beginning to stabilize, with some exceptions,” Sheerin
remarked. Lead times are stretching and, with capacity utilization
rising, we can expect some spot shortages in 2004.
On the downside, he said, the EMS segment of electronics is not
immune to the industry downturn. Acquisitions have become too expensive
and the supply chain management is inadequate. The result is big
restructurings and excess capacity.
Distribution has been particularly hard hit by the downturn, Sheerin
said, citing the high cost structure which has led to significant
losses. Consolidation is continuing, he pointed out, noting that
in the past year, Avnet acquired Kent Electronics, Pioneer-Standard
sold its electronics unit to Arrow Electronics and Reptron sold its
distribution business to Jaco.”
The future for distribution, he declared, remains bright, as it
still is the most effective way to reach a wide audience and the
most effective procurement method for small and medium OEMs and EMS
providers. Gross margins held up well during the downturn, he added,
and smaller distributors are focused and competitive.
“The distribution cycle is lagging suppliers by two to three
quarters,” Sheerin said, advising FCC attendees to expect more
consolidation, but no major acquisitions. “The business model
will continue to change, but peak-to-trough revenue and margins are
not as dramatic as in other sectors of the industry.”
FCI’s Road From Innovation to Strategic
Technology
Gilles Rizzo, director of strategic planning for FCI, discussed
the French company’s development over the years, citing specific
trends in connector design and focusing on advanced design capabilities
and increasingly sophisticated manufacturing processes.
He cited the diversity of solutions and products on the market,
including connectors for switchers and routers, a new generation
of IC sockets and automotive connectors. Increased technology has
benefitted high-tech manufacturing, he noted, but also has boosted
conventional manufacturing processes.
Rizzo described FCI as a technology-driven company striving for
innovation. FCI invested over 6% of its turnover in research and
development in 2002, he noted, commenting that his company owns 9,000
patents worldwide and 200 new patents are registered each year.
FCI’s objectives, Rizzo stated, included being the early involvement
supplier in high-end markets such as telecommunications, high-speed
data applications, automotive and consumer niches. The company strives
to anticipate new requirements in electronics, he said.
As signal speed increases, connector manufacturers will need to
develop signal integrity experience and enhance specific partnerships
with manufacturers of active components, cables and PCBs, Rizzo concluded.
Second Tier Company ODU Offers Survival Tips
How to survive a depressed market as a second-tier manufacturer
was discussed by Wolfgang Jacobi, president and CEO of ODU. The company’s
product strategy, he stressed, was to eschew commodities and concentrate
only on design-in and custom specific orders.
ODU, Jacobi noted, has a history of maintaining long-term relationships
with its sales partners. Finland has been among that number for 35
years, while Israel, Japan and the Netherlands have dealt with the
company for 15 years each.
Jacobi said his company should grow 15% to 20% this year and noted
that the medical industry occupies 30% of ODU’s business activity.
“We endeavor to find the best people for our company,” Jacobi
said, noting that employees are the company’s most important
asset. ODU sponsors classes in the arts for its workers.
Staying Ahead of the Curve
Stephen Hopkins, vice president of product management for distributor
Newark InOne, spoke on his company’s impact on the distribution
industry.
Newark InOne operates local offices in 19 countries and possesses
worldwide export capability, he stated. The company has global contract
agreements with multi-national customers, with over 3.5 million products
available worldwide and over 1,000 top worldwide manufacturers represented.
Connectors comprise a significant part of Newark InOne sales, Hopkins
declared, noting that the company’s annual connector sales
were in the $80 million range with 372,000 individual orders and
75,000 accounts.
The Newark InOne catalogue merchandises some 20,000 connectors with
124,000 total products, he noted. The company experienced double-digit
growth in 2002 and anticipated even faster growth in 2003.
The company supports all major e-procurement systems and is an industry
leader in custom e-catalogues and XML orders, Hopkins said, noting
that many of Newark’s competitors are too small to support
e-procurement systems.
Specialized advertising, direct marketing, product assortment and
sales initiatives have contributed the company’s success, he
concluded.
High Speed Connectors & Technology
Trends
Gary A. Humbert, a project manager for Molex, discussed the high-speed
connector market and technology trends. The two primary markets,
he noted, are telecom and high-speed computing.
Molex is the world’s second-largest manufacturer of electronic,
electrical and fiber optic interconnection products and systems.
The company also make a variety of switches and application tooling.
Molex, Humbert pointed out, is the number-two connector manufacturer
in the world, with sales approaching $1.9 billion. The company operates
manufacturing plants in 19 countries and 26 development centers in
15 countries with over 100,000 product lines. And “a catalogue
that could stop a bullet.”
Driving the company, he noted, are performance, growth, investment
and innovation. Some 20% of Molex’s revenue is funneled back
into new product development. Demand for high-speed bandwidth will
increase, Humbert said.
Is Fiber to the Home in our Future?
Fiber to the home is an emerging market, declared Michael J. Noonan,
CEO of Fiber Optic Network Solutions (FONS). FTTH projects are increasing
and the technology has a significant growth potential, he said.
“Copper took 90 years to reach 90% of Americas,” Noonan
declared, “while coax took 50 years to reach 90%. FTTH has
been viable for three years with under 1% penetration.”
Noonan pointed out that 21 million homes were passed with fiber
in 2003. “By 2004, that figure will reach 625 million,” he
predicted.
“Rapidly declining component costs are making fiber the optimum
solution for new networks,” he said. “The fiber industry
is poised to wire the planet.”
Why fiber now? Noonan noted that the telecom industry is emerging
from its three-year depreciation and broadband capacity is a speed
catalyst for growth. Rulings by the FCC (that would be the Federal
Communications Commission) have encouraged fiber all the way to the
home.
“FTTH is on a par with the DSL/copper upgrade,” Noonan
said, predicting that equipment and fiber suppliers will be meeting
the challenge.
Next Generation
OEM Systems Performance Requirements
Josh Nickel, a research and development engineer for Silicon Bandwidth,
discussed the need for active and passive signal connector companies
to work with one another to enable the ultimate bandwidth solutions.
He spoke of fitting interconnect components into a system to avoid
bottlenecks. “You have to be able to predict and analyze what’s
happening between component and component, between point A and point
B,” he said.
Most customers, he noted, desire an interconnect solution that is
small and compact. “We all want something we can hold in the
palm of our hand as opposed to something that’s gigantic,” Nickel
observed. “This ultimately makes sense from a cost basis.”
Loss, he noted, is not the only issue in connectors. He cited reflection
and crosstalk as two major roadblocks. Cost and latency also are
involved, he observed, as well as power and thermal issues, which
he described as “a huge problem.”
Nickel also cited the need in the industry for qualified signal
integrity engineers, noting that he recently taught a class on the
subject and expected about eight students, and 20 turned out because
their employers said they needed this information.
China and the Evolving Backplane
Market
Backplanes are the outgrowth of large telecom systems, according
to Timothy Conlan, president of the Viasystems Group, who spoke on
China and the Evolving Backplane Market. The current goal, he stressed,
is “higher density at lower cost.”
“Bandwidth needs have increased,” Conlan said, adding
that “VHDM connectors have emerged to provide better ground
shielding and ZD hard metrics open more space for routing on the
PCB. Currently emerging are mid-planes with connectors on both sides.”
Recent backplane technology has involved “reduction of the
optical-electrical-optical conversions through embedding of electro-mechanical
components such as buried coaxial lines and MEMs,” he stated.
Backplanes, he noted, are “moving to a higher degree of integration
with increased wiring density and better signal integrity.”
“The difference between telecom and computing and datacom
applications is blurring,” Conlan said, adding that “telecom
is driving development of high-performance backplanes. Optical backplanes,
however, won’t be practical until the development of a true
optical connector.”
Regarding China, Conlan pointed out that “China’s PCB
industry is highly fragmented with more than 500 manufacturers, mostly
in southern China. The country’s 2003 PCB production is estimated
at $3.8 billion, 43% of which will come from top 10 manufacturers.”
China, he declared, changes everything, citing “new competitors,
designs being initiated in China, incredible pricing, quality often
equal or better than the West and new market opportunities.
“Being in China stretches the logistic chain,” Conlan
declared, adding that companies should “get into China asap.”
Frank Burge’s Thoughts
on Buying, Selling & Surviving
Frank Burge, vice president of strategic marketing for DCMP Media
Electronics Group and EE Times, offered a backward glance at the
beginnings of the electronic industry.
“After World War II, we rebuilt what had been destroyed,” he
said, “and our enemies became our friends.” He credited
the GI bill with helping to educate millions of former servicemen,
many of whom helped build the electronics business.
Burge focused on the “customer experience and its relationship
to business and personal life.” He offered life experiences
which bolstered his skills as a salesman early in his career.
Connector / Cable Assembly
Operating Reality in China
Patrick Wan, vice president of Advanced Connectek (ACON), pointed
out that, despite the concerns about the SARS epidemic, his company
has sustained its growth in the mainland.
In terms of direct foreign investment, China is far ahead of other
countries, with the United States running second. Mexico, Poland,
Germany, India, the United Kingdom, Russia, Brazil and Spain all
are bunched up straining for the number three position.
China has advanced to sixth place among the world’s economies
at U$11.5 billion, far behind the United States at $102 billion.
Wan cited Hong Kong’s new closer economic partnership agreement
(CEPA) with China, offering a market-timing advantage for Hong Kong-based
service providers, banks, insurance companies, law firms, etc., to
enter the China market three years in advance of the World Trade
Organization requirement.
“Hong Kong telecom companies will get a head start in the
mainland market, compared to their foreign counterparts,” Wan
stated.
The pros and cons of operating in China were discussed by Wan, who
noted that a primary advantage is that China is one of the world’s
lowest-cost manufacturing places with appropriate skill levels. It’s
also the world’s largest market with a long supply pocket of
labor and engineers.
“To a certain extent, issues and matters can be negotiable
to your advantage,” Wan said, adding that “the Chinese
are really tough negotiators and visiting Western company executives
always are under time pressure.”
Military / Aerospace Driving Connector Procurement
The military / aerospace industry offers unlimited opportunities
for connector manufacturers in this post-9/11 world, according to
Darrell Wampler, president of International Aerospace Solutions.
“Military / aerospace programs are driving connector procurement,” Wampler
told the FCC attendees, noting the progress in satellites, launch
vehicles, aircraft and munitions. Of the satellite programs, 52%
of this activity is taking place in the United States.
Astrium, Space Systems Loral and Boeing share the leadership among
U.S. satellite manufacturers, largely in commercial operations, Wampler
noted. Lockheed Martin has the highest percentage of military satellite
business.
Mil/aero remains a “highly specialized business,” he
said, requiring special connector needs. Future aircraft requirements
involve the F/A 18 E/F program and the Joint Strike Fighter, which
has “open opportunities for clever engineering solutions to
save weight and complexity.”
Wire & Cable
Environmental Issues
Anthony Listro, vice president for engineering at Judd Wire, closed
the FCC program with a talk on the various environmental issues facing
the wire and cable industry.
“The European Union End-of-Life Vehicle Directive, passed
in September, 2000, covers vehicles and their components and materials,” Listro
said. “It’s goal is the prevention of waste by re-use
and recycling.”
A similar EU “end-of-life” directive for electrical
and electronic equipment covers the waste from electrical and electronic
equipment and reduction of hazardous substances, he noted. “The
directive makes producers responsible for taking back and recycling
these goods.”
“The latter directive applies to all producers of electronic
and electrical products who do business in Europe -- including U.S.
manufacturers,” Listro said. “In effect, this sets a
new global standard.”
Listro outlined the implementation scenario of the directive, from
its adoption in December, 2002, by councils and parliaments to the
target dates in 2005 and 2006 for collection systems to be operational
and financing targets attained.
“The European Commission wants electronic goods manufacturers
to replace lead, mercury, cadmium and hexavalent chromium with less-harmful
substances by July 1, 2006,” he declared. Other nations approving
similar bans include Sweden, Denmark, Japan, China and the United
States.
Progress attained by electronics OEMs was cited, including such
companies as Apple, Cannon, Hitachi, IBM, NEC, Panasonic, Sony, Toshiba,
Xerox, Dell, Logitech and Microsoft.
“OEMs and suppliers must be award of the ever-changing environmental
demands that are being placed on them,” Listro concluded.
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