Who Owns the Supply Who Owns the Supply Chain? Chain?

Distributors vs. EMS, and Where PCB Distributors vs. EMS, and Where PCB Brokers Fit InBrokers Fit In

Who Who isis this guy?this guy?

nn Editor of Editor of Circuits Assembly Circuits Assembly magazinemagazinenn Editorial director, UP Media GroupEditorial director, UP Media Groupnn Former editor, PC FAB and Former editor, PC FAB and Printed Circuit Design Printed Circuit Design

& Manufacture& Manufacturenn 6 years at IPC6 years at IPC

Today’s TalkToday’s Talk

MarketsMarketsTrends in DistributionTrends in DistributionEnvironmental AngleEnvironmental AngleCase StudiesCase StudiesPotential Forward StrategyPotential Forward Strategy

nn ELFA, ELFA, ElprintElprint to Launch New Serviceto Launch New Service

Remember ThisRemember This

nn ELFA, a components distributor and ELFA, a components distributor and ElprintElprint, a , a PCB supplier, announced a “cooperation” to PCB supplier, announced a “cooperation” to offer a single source for components and PCBs. offer a single source for components and PCBs.

nn Move announced Feb. 7, 2005 Move announced Feb. 7, 2005 nn Nordic companiesNordic companiesnn ElprintElprint founded in 1973 in Bergen, Norway.founded in 1973 in Bergen, Norway.

ELFA (ELFA (elfaelfa.se) will be the first .se) will be the first electronics electronics distributordistributor to provide to provide printed circuit boardsprinted circuit boardsfor production of prototypes and rampfor production of prototypes and ramp--ups. ups.

This complete solution makes it possible for This complete solution makes it possible for buyers to use only one channel for purchasing buyers to use only one channel for purchasing components and PCBs.components and PCBs.

MARKETS MARKETS

Economic ConditionsEconomic Conditions

nn Manufacturing grew for the 27th straight month in August (ISM, Manufacturing grew for the 27th straight month in August (ISM, 9/05)9/05)

nn New orders 56.4%, down 4.2 points from July New orders 56.4%, down 4.2 points from July nn Production 55.9%, down 4.4 points from JulyProduction 55.9%, down 4.4 points from Julynn New orders and production still strongNew orders and production still strongnn Backlogs up slightly, to 50.5 Backlogs up slightly, to 50.5 nn Internal inventories down, customer stock levels up Internal inventories down, customer stock levels up nn Electronic components and equipment 3d strongest category in Electronic components and equipment 3d strongest category in

August August nn Industrial and commercial equipment, and computers also grewIndustrial and commercial equipment, and computers also grew

Good OmenGood Omen

“The manufacturing sector had another good “The manufacturing sector had another good month in January. New orders and production month in January. New orders and production remain relatively strong.” remain relatively strong.” –– ISM chairman Norbert ISM chairman Norbert Ore (2/06)Ore (2/06)

Industry Data PointsIndustry Data Points

nn SMT equipment market up 8% SMT equipment market up 8% yoyyoynn January PCB bookings up 10.8% (IPC, 2/06)January PCB bookings up 10.8% (IPC, 2/06)nn February 2006 semiconductor equipment b2b February 2006 semiconductor equipment b2b

1.01, highest since August 2004 and up 27% 1.01, highest since August 2004 and up 27% yoyyoy(SEMI, 3/06)(SEMI, 3/06)

nn December semiconductor sales up 6.8% (SIA, December semiconductor sales up 6.8% (SIA, 2/06) 2/06)

World Electronics Equipment World Electronics Equipment MarketMarket

nn 2004: 2004: $1.11 trillion$1.11 trillionnn 2005: 2005: $1.37 trillion (+7.8%)$1.37 trillion (+7.8%)nn CommunicationCommunication 20.3%20.3%nn BusinessBusiness 31.7%31.7%nn InstrumentationInstrumentation 7.7%7.7%nn IndustrialIndustrial 10.7%10.7%nn GovtGovt/Military/Military 10.9%10.9%nn ComputerComputer 31.8%31.8%nn AutoAuto 5.7%5.7%nn ConsumerConsumer 10.5%10.5%

Source: Electronic Outlook (9/05)Source: Electronic Outlook (9/05)

Where It’s BuiltWhere It’s Built

nn N. AmericaN. America 39%39%nn ROWROW 30%30%nn W. EuropeW. Europe 18%18%nn JapanJapan 13%13%

Source: Electronic Outlook (9/05)Source: Electronic Outlook (9/05)

World Semi ConsumptionWorld Semi Consumption2003 ($ billions)2003 ($ billions)

nn JapanJapan 267267nn EuropeEurope 222222nn N. AmericaN. America 222222nn Asia PacificAsia Pacific 431431

Source: SIASource: SIA

World Semi ConsumptionWorld Semi Consumption2004 ($ billions)2004 ($ billions)

nn JapanJapan 274274nn EuropeEurope 236236nn N. AmericaN. America 234 (+5.4%)234 (+5.4%)nn Asia PacificAsia Pacific 532532

Source: SIASource: SIA

World Semi ConsumptionWorld Semi Consumption2005 ($ billions) 2005 ($ billions)

nn JapanJapan 286286nn EuropeEurope 253253nn N. AmericaN. America 235 (+0.04%)235 (+0.04%)nn Asia PacificAsia Pacific 605605

Source: SIASource: SIA

PCB MarketPCB Market20052005

nn $42 billion worldwide$42 billion worldwidenn JapanJapan 24.3%24.3%nn ChinaChina 23.7%23.7%nn TaiwanTaiwan 14.3%14.3%nn N. AmericaN. America 10.7%10.7%nn S. KoreaS. Korea 10.4%10.4%nn EuropeEurope 9.2%9.2%nn RoWRoW 7.5%7.5%

Source: Henderson Ventures (6/05)Source: Henderson Ventures (6/05)

ConcernsConcerns

nn High energy prices High energy prices nn Continued Continued commodizationcommodization of electronics of electronics

productsproductsnn Currency fluctuationsCurrency fluctuationsnn Worldwide political instability/terrorism Worldwide political instability/terrorism nn Environmental catastrophes (earthquakes, Environmental catastrophes (earthquakes,

hurricanes, etc.)hurricanes, etc.)

Distribution MarketDistribution Market

nn FranchisedFranchisednn IndependentsIndependents

FranchisedFranchised

nn Top 10 franchised distributors’ global sales: $37 Top 10 franchised distributors’ global sales: $37 billion last year, up 20% from $30 billion in 2003 billion last year, up 20% from $30 billion in 2003

nn Arrow and Avnet combined accounted for 54% Arrow and Avnet combined accounted for 54% of the totalof the total

IndependentsIndependents

nn Top 10 independents revenue: $2.4 billion, up Top 10 independents revenue: $2.4 billion, up nearly 15%nearly 15%

nn Smith & Associates no. 1, up 60% in revenueSmith & Associates no. 1, up 60% in revenue

Distributor CommentsDistributor Comments

nn 2004 industry’s best year since 20002004 industry’s best year since 2000nn Catalog distributors outpaced industry sales Catalog distributors outpaced industry sales

growth in North America in 2004 (NEDA)growth in North America in 2004 (NEDA)nn Catalog distributors serve engineers who buy small Catalog distributors serve engineers who buy small

quantities of components for evaluation and quantities of components for evaluation and prototypingprototyping

nn BroadBroad--line and specialist distributors tend to serve line and specialist distributors tend to serve the larger, productionthe larger, production--volume buyers, which have volume buyers, which have shifted offshoreshifted offshore

Top 25 North American Electronic Top 25 North American Electronic Component DistributorsComponent Distributors

Calendar 2004Calendar 2004 % Revenue % Revenue Co.Co. Rev. ($m)Rev. ($m) %03%03--0404 NANA Passives Passives 11 AvnetAvnet11 10,766.010,766.0 1313 5252 9922 Arrow Electronics Arrow Electronics 10,646.110,646.1 2323 57.557.5 N/AN/A33 Future Electronics Future Electronics 3,381.73,381.7 N/AN/A 7070 N/AN/A44 Bell Microproducts Bell Microproducts 2,827.82,827.8 2727 4040 8855 MemecMemec11 2,172.62,172.6 N/AN/A 4444 0066 TTITTI22 877.0877.0 3535 7575 10010077 Smith & Associates Smith & Associates 513.0513.0 6161 100100 N/AN/A88 Newark Newark InOne InOne 521.5521.5 1212 9898 565699 DigiDigi--Key Key 530.5530.5 3333 9393 61611010 All American All American 410.0410.0 3030 100100 88

1. Merged 1. Merged 2. Includes Mouser. Source: Reed Research Group 3/20052. Includes Mouser. Source: Reed Research Group 3/2005

Top 25 North American Electronic Top 25 North American Electronic Component DistributorsComponent Distributors

Calendar 2004Calendar 2004 % Revenue % Revenue Co.Co. Rev. ($m)Rev. ($m) % 03% 03--0404 NANA Passives Passives 1111 Converge Converge 390.0390.0 2323 100100 551212 NuNu Horizons Horizons 458.0458.0 4141 7676 15151313 DAC DAC 344.8344.8 2626 9898 1001001414 Richardson Electronics Richardson Electronics 520.1520.1 88 5151 50501515 Sager Electronics Sager Electronics 239.0239.0 N/AN/A 9999 95951616 Dependable Comp. SupplyDependable Comp. Supply 246.2246.2 66 8787 39391717 Allied Electronics Allied Electronics 201.2201.2 N/AN/A 9999 49.549.51818 JacoJaco ElectronicsElectronics 249.9249.9 --22 7979 25251919 America II Electronics America II Electronics 230.0230.0 1515 7070 24242020 Classic Components Classic Components 238.4238.4 55 4646 30302121 A.E. A.E. Petsche Petsche 120.0120.0 4141 8585 1001002222 Master Distributors Master Distributors 92.892.8 1313 8989 662323 Advanced MP Technology Advanced MP Technology 175.0175.0 N/AN/A 4545 15152424 Electro Sonic Electro Sonic 74.574.5 88 100100 78782525 California Eastern Labs California Eastern Labs 90.390.3 1212 7878 00

Top 25 Global Franchised Top 25 Global Franchised DistributorsDistributors

EMS MarketEMS Market

nn 2004 EMS revenue: $117.6 billion, up 15.8% (2004 EMS revenue: $117.6 billion, up 15.8% (iSuppliiSuppli, , 9/05)9/05)

nn 2005 EMS revenue: $134 billion, up 14% (2005 EMS revenue: $134 billion, up 14% (iSuppliiSuppli, , 9/05) 9/05)

nn 9.9% CAGR from 2003 to 2009 (9.9% CAGR from 2003 to 2009 (iSuppliiSuppli, 9/05), 9/05)nn 2004 ODM revenue: $73.6 billion, up 27.2% (2004 ODM revenue: $73.6 billion, up 27.2% (iSuppliiSuppli, ,

3/05)3/05)nn 2005 ODM growth rate 29% (TFI, 9/05)2005 ODM growth rate 29% (TFI, 9/05)nn 2004 EMS/ODM combined revenue: $190 billion, up 2004 EMS/ODM combined revenue: $190 billion, up

20.1% (20.1% (iSuppliiSuppli, 3/05), 3/05)

Factor for GrowthFactor for Growth

“The use of supply“The use of supply--chain power to control and chain power to control and manage complex relationships among OEMs, manage complex relationships among OEMs, EMS, EMS, ODMsODMs and component suppliers.” and component suppliers.” ––iSuppliiSuppli (3/05)(3/05)

“Combos”“Combos”

nn 8 of top 25 worldwide distributors offer EMS 8 of top 25 worldwide distributors offer EMS (ESM, 5/05)(ESM, 5/05)

nn For top tier For top tier distysdistys, since late 1990s the trend is , since late 1990s the trend is away from combining the servicesaway from combining the services

nn Among lower tiers, still a lot of this; e.g., World Among lower tiers, still a lot of this; e.g., World Micro (Micro (worldmicroworldmicro.com), .com), SarcoSarco ((sarcosarco.org).org)

PCB DistributionPCB Distribution

nn Two tiers (or three)Two tiers (or three)

Tier OneTier One

nn MWaveMWave $19.5m$19.5mnn BBGBBG $12m+$12m+nn PD CircuitsPD Circuits $12m+$12m+nn EpecEpec $12m*$12m*

*Could be double*Could be double--countedcounted

Tier TwoTier Two

nn Few clients/few PCB suppliersFew clients/few PCB suppliers-- or or --

nn Dozens of clients/single PCB supplierDozens of clients/single PCB supplier-- or or ––

nn Not dedicated PCB brokerNot dedicated PCB broker

Tier Two FirmsTier Two Firms

nn Electronic Components Marketing GroupElectronic Components Marketing Groupnn UniversalUniversalnn SH ElectronicsSH Electronicsnn Westwood AssociatesWestwood Associatesnn NypacNypacnn Gold Circuits MBE Gold Circuits MBE nn StaciStacinn US TechUS Technn Addison Labs Addison Labs

And then there’s the And then there’s the fabsfabs … …

nn 32% of 2005 shipments were produced offshore 32% of 2005 shipments were produced offshore (IPC)(IPC)

nn How many PCB How many PCB fabsfabs also broker? Estimates also broker? Estimates vary but the number is growingvary but the number is growing

Trends In Distribution Trends In Distribution

Does Distribution Pay?Does Distribution Pay?

Arrow Arrow nn FY July 05: gross margin 4%; net margin 2.1%FY July 05: gross margin 4%; net margin 2.1%

AvnetAvnetnn FY July 05: gross margin 2.9%; net margin 1.5%FY July 05: gross margin 2.9%; net margin 1.5%

What Will They Do?What Will They Do?

nn Distributors trying to reinvent themselvesDistributors trying to reinvent themselvesnn Assembly, other procurement servicesAssembly, other procurement servicesnn More valueMore value--added servicesadded services

For For DistysDistys, More Service Ahead, More Service Ahead

For distributors, “[a]For distributors, “[a]ddingdding the service part of the service part of their business is helping them take margins their business is helping them take margins higher." higher." –– Robert Robert DamronDamron, analyst, Tucker Anthony , analyst, Tucker Anthony SutroSutro Capital MarketsCapital Markets

Distributor VA ServicesDistributor VA Services

nn Component distributors are offering more VA Component distributors are offering more VA servicesservices

•• Design servicesDesign servicesnn RoHSRoHS component guidance component guidance nn BoMBoM scrubbingscrubbingnn Component kittingComponent kittingnn Tracking/ITTracking/IT

Trends in EMSTrends in EMS

More ValueMore Value--Added ServicesAdded Services

nn SCMSCMnn Procurement Procurement nn BoMBoM scrubbingscrubbingnn Component kittingComponent kittingnn Tracking/ITTracking/ITnn Smaller Smaller AVLsAVLs

3d Parties3d Parties

nn 3PLs (DHL, 3PLs (DHL, FedexFedex, UPS etc.), UPS etc.)nn Top 100 3PLs control almost 33%Top 100 3PLs control almost 33% of an of an

estimated $270b in outsourced valueestimated $270b in outsourced value--added added logistics services (logistics services (supplychainbrainsupplychainbrain.com, 5/04) .com, 5/04)

nn Top 25 annual revenues: <$79.5bTop 25 annual revenues: <$79.5bnn Growth rate 6Growth rate 6--8% 8% nn EMS firms (Flextronics)EMS firms (Flextronics)

Procurement TrendsProcurement Trends

nn Large EMS firms using Large EMS firms using distysdistys less than before less than before (CEL, SAMN, SLR)(CEL, SAMN, SLR)

nn OEMs under $50m tending toward distributors OEMs under $50m tending toward distributors nn Smaller EMS firms (below $200m) use combo Smaller EMS firms (below $200m) use combo

of distributors and directof distributors and direct•• EMS firms putting purchasing offices in Asia to EMS firms putting purchasing offices in Asia to

buy direct even if they don’t have plants therebuy direct even if they don’t have plants there•• EMS owns about 20% of total electronics build EMS owns about 20% of total electronics build

market; growing slightlymarket; growing slightly

Procurement Trends Procurement Trends -- TechnologyTechnology

nn Do you expect to be dealing with 0201s in 2006? Do you expect to be dealing with 0201s in 2006? Yes 96.9% No 3.1% (Yes 96.9% No 3.1% (PCDM PCDM poll, 9/05)poll, 9/05)

nn No consensus on surface finish, although ENIG No consensus on surface finish, although ENIG and and OSPsOSPs seemseem to have the inside trackto have the inside track

nn OEMs delaying OEMs delaying PbPb--free component purchases; free component purchases; transition now expected in 1Q 2006transition now expected in 1Q 2006

nn EMS firms are not seeing more OEM business EMS firms are not seeing more OEM business due to leaddue to lead--freefree

North America AttributesNorth America Attributes

nn Complex and large bills of materialsComplex and large bills of materialsnn Lower volume, more component variability Lower volume, more component variability nn Lots of new product introduction and Lots of new product introduction and

engineering engineering nn HighHigh--end computers, medical equipment, end computers, medical equipment,

industrial controls, some automotive systemsindustrial controls, some automotive systems

The EMS as Distributor?The EMS as Distributor?

nn Most EMS firms gave up Most EMS firms gave up distydisty ops in late ’90sops in late ’90snn Different model (catalog vs. service)Different model (catalog vs. service)nn Not as profitable as EMSNot as profitable as EMS

The The DistyDisty as EMS?as EMS?

nn For For distysdistys, still plenty of low volume EMS work, still plenty of low volume EMS worknn Among Among distysdistys, some ad hoc medical programs, some ad hoc medical programsnn Some Some distysdistys don’t want to risk losing EMS don’t want to risk losing EMS

customerscustomers

One Analyst’s OpinionOne Analyst’s Opinion

“Certain segments of the distribution and EMS “Certain segments of the distribution and EMS industries will converge over the next 20 years.” industries will converge over the next 20 years.” –– Carter Carter ShoopShoop, analyst, Deutsche Bank, analyst, Deutsche Bank

Sure enough …Sure enough …

LOUISVILLE, KY (July 18, 2005) LOUISVILLE, KY (July 18, 2005) –– RAD RAD Electronics, Inc., an outsource provider of Electronics, Inc., an outsource provider of electronics manufacturing services, purchased electronics manufacturing services, purchased the assets of the assets of AstrexAstrex, Inc., a value, Inc., a value--added added electronics distributor.electronics distributor.

nn RAD expects 2006 sales to exceed $100 millionRAD expects 2006 sales to exceed $100 million

nn “We see substantial cross“We see substantial cross--selling opportunities selling opportunities to our mix of OEM, to our mix of OEM, contract manufacturercontract manufacturer, , and reseller customers.” and reseller customers.” –– Charles W. Mann, Charles W. Mann, CEO, RADCEO, RAD

The Counter ArgumentThe Counter Argument

nn PurePure--play EMS model: very service focused, play EMS model: very service focused, based on a core of companiesbased on a core of companies

nn Hard for distributor to offer all the lines a Hard for distributor to offer all the lines a customer needscustomer needs

“Distribution is a commodity business; if you “Distribution is a commodity business; if you aren’t number one or two, you won’t make aren’t number one or two, you won’t make money.” money.” –– Sue Sue MuchaMucha, Powell, Powell--MuchaMucha ConsultingConsulting

Margin GameMargin Game

nn Distributor business characterized by low Distributor business characterized by low margins margins

nn Some midSome mid--tier EMS companies still have gross tier EMS companies still have gross margins of 10%+margins of 10%+

ConclusionsConclusions

nn EMS remain a major customer for PCBsEMS remain a major customer for PCBsnn Expect some EMS to try distribution Expect some EMS to try distribution –– and failand failnn Expect distributors to retain some inExpect distributors to retain some in--house house

EMS workEMS worknn Distributors looking to improve margins and Distributors looking to improve margins and

VA services are a VA services are a potentialpotential customer for PCBscustomer for PCBs

The Environmental Angle The Environmental Angle

LegislationLegislation

nn WEEE: Effective as of Aug. 13WEEE: Effective as of Aug. 13

nn RoHSRoHS: Effective July 1, 2006: Effective July 1, 2006

What Are They?What Are They?

nn WEEE mandates recycling of electronicsWEEE mandates recycling of electronics

nn RoHSRoHS restricts several hazardous substances, restricts several hazardous substances, including bromine and leadincluding bromine and lead

IssuesIssues

nn WarrantyWarranty

nn LiabilityLiability

nn DocumentationDocumentation

What Does This Mean?What Does This Mean?

nn EMS firms “very worried” they may not be able EMS firms “very worried” they may not be able to guarantee to suppliers that their parts are to guarantee to suppliers that their parts are PbPb--freefree

nn Increasing liability concernsIncreasing liability concernsnn “Customers are looking for more service and in “Customers are looking for more service and in

response to that, different levels of risk sharing response to that, different levels of risk sharing and reward sharing.” and reward sharing.” –– Craig Craig MuhlhauserMuhlhauser, president, , president, Celestica Celestica

Ignored at the TopIgnored at the Top

“[T]here is no awareness in management and “[T]here is no awareness in management and procurement, and people in quality procurement, and people in quality [departments] are less aware that they might [departments] are less aware that they might have to rehave to re--qualify products, for example.” qualify products, for example.” ––Alan Alan BrewinBrewin, head of , head of RoHSRoHS and WEEE projects, and WEEE projects, National Physical Laboratory National Physical Laboratory

DocumentationDocumentation

nn EIA/ECCBEIA/ECCB--954, “Electrical and Electronic 954, “Electrical and Electronic Components and Products Hazardous Components and Products Hazardous Substance Free Standard and Requirements” Substance Free Standard and Requirements”

nn Released in March by the Electronics Industries Released in March by the Electronics Industries Alliance (Alliance (eiaeia.org) .org)

What It IsWhat It Is

nn EIA/ECCBEIA/ECCB--954 identifies procurement routes, 954 identifies procurement routes, traceability, handling and corrective actions for traceability, handling and corrective actions for electronics designers and manufacturers. electronics designers and manufacturers.

nn In many cases, EIA/ECCBIn many cases, EIA/ECCB--954 stipulates what 954 stipulates what needs to be documented.needs to be documented.

What It Is, Part 2What It Is, Part 2

nn All those affiliated with the producing of electronics All those affiliated with the producing of electronics products must understand the regulatory and statutory products must understand the regulatory and statutory requirements covering those products, and have requirements covering those products, and have processes in place to manage their operations based on processes in place to manage their operations based on their own declaration of how they comply. their own declaration of how they comply.

nn Compliance to EIA/ECCBCompliance to EIA/ECCB--954 is based on a 954 is based on a company’s own assumptions as to the completeness of company’s own assumptions as to the completeness of its HSF standardsits HSF standards

What It Isn’tWhat It Isn’t

Does not cover:Does not cover:

nn How procurement or design or manufacturing How procurement or design or manufacturing should be performed should be performed

nn Whether HSF materials can be used Whether HSF materials can be used

ComplianceCompliance

nn Accomplished by ensuring your Accomplished by ensuring your supplierssuppliers are qualified are qualified to the “root” of supply. to the “root” of supply.

nn “The processes used to identify, control, quantify and “The processes used to identify, control, quantify and report the HS content in an electrical or electronic report the HS content in an electrical or electronic component, or an element thereof, must be defined and component, or an element thereof, must be defined and understood in sufficient detail to assure all concerned understood in sufficient detail to assure all concerned parties of the HSF status of a product. Documented parties of the HSF status of a product. Documented processes shall be within the organization’s business processes shall be within the organization’s business and quality management systems.”and quality management systems.”

RegistrationRegistration

Companies registered as in compliance become Companies registered as in compliance become part of the equivalent of a QML. Certificates are part of the equivalent of a QML. Certificates are renewed automatically, provided companies stay renewed automatically, provided companies stay in compliance with the documentation in compliance with the documentation requirements.requirements.

“Be a manager, go to jail”“Be a manager, go to jail”

Affects all job functions:Affects all job functions:

nn DesignDesignnn SupplySupply--chain management chain management nn Operations Operations nn Sales and marketing Sales and marketing

Impact on Sales/EngineersImpact on Sales/Engineersnn Sales first line in company, and first to address: are you certiSales first line in company, and first to address: are you certified? fied? nn If customers fail to ask, sales can use compliance as a If customers fail to ask, sales can use compliance as a

differentiatordifferentiatornn If customer asks and the answer is no, you might not get to the If customer asks and the answer is no, you might not get to the

next stage in the auditnext stage in the auditnn Sales will probably need to know, basically, what the company isSales will probably need to know, basically, what the company is

doing toward compliancedoing toward compliancenn From a distribution perspective, process for managing HFS From a distribution perspective, process for managing HFS

internally will probably be minimal. But … supply chain will internally will probably be minimal. But … supply chain will have to be controlled; supplier engineers must know how have to be controlled; supplier engineers must know how suppliers are managing suppliers are managing their their processesprocesses

StatusStatus

nn Passed by EIA in MarchPassed by EIA in Marchnn Now at international levelNow at international levelnn IECQ reviewing the standard for international IECQ reviewing the standard for international

approvalapprovalnn 3d party auditors popping up (NSAI, etc.)3d party auditors popping up (NSAI, etc.)

Expected Audit PeriodExpected Audit Period

nn Under 100 employees, 2Under 100 employees, 2--3 days onsite 3 days onsite

nn 1 1 --1.5 days paperwork1.5 days paperwork

EMS Trends RevisitedEMS Trends Revisited

nn More valueMore value--added servicesadded servicesnn SCMSCMnn Procurement Procurement nn BoMBoM scrubbingscrubbingnn Component kittingComponent kitting

CASE STUDY: CelesticaCASE STUDY: Celestica

Celestica AttributesCelestica Attributes

nn Tier 1 EMS firm Tier 1 EMS firm nn Sales $8.47 billion in 2005; publicly heldSales $8.47 billion in 2005; publicly heldnn 40+ sites,40+ sites, 46,000 employees46,000 employeesnn 85% of footprint in low85% of footprint in low--cost geographiescost geographiesnn Blue chip customer base: IBM, Cisco, etc.Blue chip customer base: IBM, Cisco, etc.nn High volume manufacturing, design centers, High volume manufacturing, design centers,

enclosures, etc. enclosures, etc.

Celestica AttributesCelestica Attributes

nn Try to maintain complete control over supply Try to maintain complete control over supply chain. This includes components, PCBs, chain. This includes components, PCBs, materials (solder pastes, adhesives), etc.materials (solder pastes, adhesives), etc.

nn GreenGreen--centric: All Celestica facilities will be centric: All Celestica facilities will be RoHSRoHS--compliant “well in advance” of the July 1, compliant “well in advance” of the July 1, 2006, compliance date2006, compliance date

nn New emphasis on diversified markets (e.g., New emphasis on diversified markets (e.g., automotive)automotive)

Celestica AttributesCelestica Attributes

nn Lean manufacturing implementationLean manufacturing implementation

nn Sales focus is on lowering total lifecycle costSales focus is on lowering total lifecycle cost

nn Changing to buying direct; eliminating Changing to buying direct; eliminating distysdistys

CASE STUDY: CASE STUDY: ReptronReptron ElectronicsElectronics

ReptronReptron AttributesAttributes

nn MidMid--tier EMS providertier EMS providernn Sales: $138m in 2005; publicly held (OTC)Sales: $138m in 2005; publicly held (OTC)nn FullFull--service EMS facilities in FL, MN and MI service EMS facilities in FL, MN and MI nn System integration facility in Silicon ValleySystem integration facility in Silicon Valleynn Sold distribution services, June 2003Sold distribution services, June 2003nn Medical (40%), banking (15%), industrial (20%), Medical (40%), banking (15%), industrial (20%),

telecom (15%), semi (5telecom (15%), semi (5--6%)6%)nn Inventories increased 8.1% Dec. 04 Inventories increased 8.1% Dec. 04 -- Dec. 05Dec. 05

ReptronReptron AttributesAttributesnn Complex products/lower volumesComplex products/lower volumesnn Top level Top level BoMBoM averages 200 line items and contains four averages 200 line items and contains four

complex printed circuit assemblies whose complex printed circuit assemblies whose BOMsBOMs each average each average 400400--500 line items. 500 line items.

nn Volumes: 5Volumes: 5--10 units/month during introduction (may last <12 10 units/month during introduction (may last <12 mos.) mos.)

nn Commercial “volume” 30Commercial “volume” 30--50 units/mo.50 units/mo.nn Key on engineering depth, rapid response to customer needs, Key on engineering depth, rapid response to customer needs,

innovative SCM and stocking strategies, and the willingness to innovative SCM and stocking strategies, and the willingness to provide costprovide cost--effective endeffective end--ofof--life and endlife and end--market repair depot market repair depot activities for extended product lifecyclesactivities for extended product lifecycles

nn “U.S. manufacturing remains a viable option for “U.S. manufacturing remains a viable option for unit assembly because the total combination of unit assembly because the total combination of project requirements add up to competitive total project requirements add up to competitive total cost when balanced against leadcost when balanced against lead--time issues, time issues, business model preferences and support business model preferences and support flexibility options typically found offshore.” flexibility options typically found offshore.” ––Bruce Bruce KolekKolek, director of engineering, director of engineering

CASE STUDY: CASE STUDY: MassTechMassTech EMSEMS

MassTechMassTech AttributesAttributes

nn Tier 3 EMS firm Tier 3 EMS firm nn Sales $50mSales $50m--$100m in 2004; privately held $100m in 2004; privately held nn 1 site, Woburn, MA; 80 employees 1 site, Woburn, MA; 80 employees nn All customers U.S., most in New EnglandAll customers U.S., most in New Englandnn 3 SMT lines3 SMT linesnn Customer acceptance rate, July 04 to June 05: Customer acceptance rate, July 04 to June 05:

9898--100%100%

MassTechMassTech AttributesAttributes

nn Try to maintain complete control over supply Try to maintain complete control over supply chain. This includes components, PCBs, chain. This includes components, PCBs, materials (solder pastes, adhesives), etc.materials (solder pastes, adhesives), etc.

nn Offering help to customers in Offering help to customers in PbPb--free free transitionstransitions

nn “Have to be IT savvy.”“Have to be IT savvy.”nn “Looking at other paths for tracking.”“Looking at other paths for tracking.”

SummarySummary

nn DistysDistys more into VA servicesmore into VA servicesnn EMS more into VA servicesEMS more into VA servicesnn Environmental legislation will affect how Environmental legislation will affect how everyoneeveryone

does businessdoes businessnn War (or convergence) inevitable between War (or convergence) inevitable between distysdistys

and EMS over OEM SCMand EMS over OEM SCMnn Their suppliers cannot help but be affectedTheir suppliers cannot help but be affected

Possible Future StrategyPossible Future Strategy

nn DistysDistys getting into PCB sales (ELFA, getting into PCB sales (ELFA, ElprintElprint))

nn New model: Partner with component New model: Partner with component distributors as their PCB specialist?distributors as their PCB specialist?