In this edition of our newsletter we are very pleased to bring you an interview with our industry's foremost prognosticator Walt Custer. Walt is our industry's "go-to" guy when it comes to talking about where we've been and where we are going. We are thrilled to bring you this six pack of questions with Walt.
DAN: Can I ask you about on-shoring; is this real or just wishful thinking?
WALT: Beginning in the early 2000s OEMs were driven (often by their shareholders) to subcontract their manufacturing and concentrate on their core competencies, especially developing new products. Manufacturing was shifted to third parties in lower cost regions - especially China. Ultimately the entire supply chain followed. Manufacturing costs initially plummeted and volumes rose especially for high volume consumer goods.
More recently labor and overhead costs have risen in Asia, the China RMB has strengthened and shipping costs to N. America have increased. Intellectual property protection also has been an issue.
Domestic companies are now looking carefully at their "total delivered cost" and considering re-shoring to improve their response time and protect their intellectual assets while still remaining competitive on price. A "Buy America" movement and an effort to increase local employment have also supported on-shoring. To this end Motorola began manufacturing its Moto X smartphones in Texas and Apple is making its latest Mac Pro in Arizona. On a wider scale thanks to NAFTA incentives, local proximity and inexpensive labor, Mexico has become the second largest auto importer to the USA. Admittedly many of the electronic components used by Motorola (now Microsoft), Apple and the Mexican car plants come from China but N. American manufacturing is slowly returning. And there's more, appliance resellers like Walmart have pledged to source more US-made products and for innovative startups product intros will often be done based upon local manufacturing. Short term this will mean more prototype and low volume PCB production in the USA, not a lot initially; but I believe the "tide is turning."
So to answer your question - on-shoring is real but the short term impact will be small.
DAN: Walt how do you see the western market at this time? By western market I mean both Europe and North America.
WALT: In N. America PCB shipments declined 1.9% in 2013 vs. 2012 but rose 3.2% in 4Q'13 vs. 4Q'12 (IPC data). European PCB shipments were down 0.9% for all of 2013 but were up 5.1% in the fourth quarter.
My early estimate is that 2014 will be a better year with both N. American and European PCB sales increasing in low single digit growth.
It should be noted that both the N. American and European economies are still very fragile. Stronger growth is possible but there is also the possibility of a disruption.
DAN: American companies are worried about their diminishing vendor base. Unlike Taiyo America, many of our vendors are pulling out or reducing their services, this has worried the Fab owners, should they be worried? Your thoughts?
WALT: Most key suppliers to the PCB industry are now multinational. They have established service, distribution and in many cases manufacturing and R&D in local markets. Taiyo does an especially good job of this for the USA with its Carson City facility. I think domestic PCB manufacturers that have embraced financially sound global suppliers with local support staffs will be fine.
DAN: What is your prediction for 2014; will it be a good year?
WALT: I think 2014 will be a better year than 2012 & 2013. At this point I am expecting 5-6% global PCB shipment growth however realistically most of this will be in Asia. N. America and Europe have been declining markets in recent times (but they finished strong in 4Q'13). China, Taiwan, S. Korea, Thailand and more recently Vietnam have enjoyed more robust longer term growth.
China is now facing cost and labor issues and in my opinion will eventually (not in 2014) lose PCB market share to lower cost Asian and perhaps African countries.
As noted above in 2014 I expect that N America and Europe will finally grow again but in low single digits. While the military market has suffered due to budget cuts, industrial electronics, new product introductions and re-shoring efforts will create opportunities.
DAN: Electronics growth has been very cyclical. Are there methods that will predict future changes in our business climate?
WALT: Leading indicators can predict rises and falls in the business cycles. For PCB and semiconductor shipments the PMI (Purchasing Managers Index) is a 1-2-month leader. For those selling capital equipment this same PMI gives about a 6-month warning about coming growth and declines in demand.
DAN: What are sources of data to monitor your company's growth vs. the industry?
WALT: Here are some of the sources we use:
- Regional PCB shipments for N. America (IPC), Europe (Eurostat), Japan (JEITA) and Taiwan/China and S. Korea
(composite sales of groups of local PCB companies)
- SIA semiconductor shipments by region
- PMI leading indicators by country (www.markiteconomics.com and www.ism.ws/)
- Electronic equipment sales by region (US DOC, Eurostat, JEITA and Asian composites) and product types (composite
company financials by sector)
- And of course your company's monthly data to use as a comparison
DAN: There you have it, some information you can take to the bank, I love the idea of our shipments growing 5 to 6% this year, don't you?!
If you want to discuss forecasting technology or data availability as it applies to your business I will try to help.