Generic Supply ProfileElectronics Manufacturing Services (Refresh)

Voice, Data and Communication Equipment

Electronics Manufacturing Services (Refresh)
State of Flux
Final Report 22 March 2012

Executive Summary 1. Geographic risk (risk score: D) Very high risk as supply-chains rely on Far East and South East Asian manufacturers for Tier 1 and Tier 2 voice, data and communication equipment (China, Japan, Taiwan, South Korea and Thailand produced 83.9% of global PCBs in 2010). High risk from natural disasters (eg earthquakes, cyclones or tsunamis in Japan, earthquakes in Mexico, and floods in Thailand). 2. Economic risk (risk score: D/C) Very high/ high risk due to: rising input costs (eg copper, a key component of PCBs, rose 26.6% in 2010; Chinese wages rose by 20% in 2011 and are expected to rise by 15% a year to 2015); supply chain disruption (eg following the recent earthquake in Japan and floods in Thailand); currency risk (sales are in US dollars) and a high dependence on skilled labour. 3. Political risk (risk score: D/C) Very high/ high risk due to: risk of supplier failure due to government stimulus giving advantage to Chinese and Hungarian suppliers; instability in China and Thailand. 4. Structural risk (risk score: C) High risk as: suppliers are consolidating as many have high levels of debt and face failing sales.

Risk Factor

Title

Risk Score

Comments

2011 2012

D
Printed Circuit Boards

Industry/Supply Market Specific Geographic Exposures

Copper Clad Laminates

There is still a high disruption risk stemming from the geographic concentration of suppliers in the Far East. China still accounts for the largest share of global PCB manufacture (40%) and Japan the second largest. Supply chains have been significantly disrupted by the earthquake and tsunami in Japan in March 2011. Supply chains are dependent on China and Japan; and both the countries have high probability of disruption caused by natural disaster. South East Asia continues to become a significant alternative for PCB manufacture to the Far East. Supply from Thailand is still disrupted following the floods in 2011. Continental hubs exist producing PCBs for neighbouring markets. These include Mexico, serving North America and Central/Eastern Europe serving Western Europe. There continues to be a high risk of environmental regulation in this supply chain. Environmental standards have forced the shut-down of non-

compliant plants in China in the last year.

QUESTIONS
Supply of electronic manufacturing services (EMS) for voice, data and communication equipment and components (Tier 1) is still concentrated in the Far East and South East Asia, principally China, Japan, and Thailand. Other countries prominent in EMS across the globe are Mexico, Hungary, and Romania. Tier 1 Printed Circuit Boards (PCBs)

Which Geographic areas does this supply category come from?

Countries in the Far East and South-East Asia, including China, Japan, Taiwan, South Korea and Thailand, produced 83.9% of the global Printed Circuit Board (PCB) output in 2010. The top three PCB producing countries, China, Japan and Taiwan, remain the same as in 2008. They accounted for 75% of the global production in 2008. Other countries involved in PCB manufacturing include Mexico, Romania and Hungary Tier 2 Copper Clad Laminates (CCL) It is a Tier 2 material which accounts for 3040% of the total manufacturing cost of PCBs.CCL is sourced principally from Japan (see section..). China still accounts for a large proportion of global PCB production (40% in 2010). Japan is still the second largest manufacturer of PCBs. However, the proportion produced by Japan has reduced significantly since the earthquake and tsunami in March 2011 (14.9% reduction in production from the year before). Japan still is responsible for nearly all (more than 90%) the global production of Bismaleimide-triazine (BT) resin, an essential component for PCB manufacture. A shift away from Far East based Suppliers is occurring. Consumers are increasingly looking to South East Asia, Mexico (especially from North America) and Central/Eastern Europe (especially from Western Europe). Tier 1 Printed Circuit Boards

Is there any specific geographic concentration for this supply?

China: accounted for nearly 40% of global PCB production in 2010, with revenues of US$22 billion. In 2011, in Mainland China there were 15,000 PCB manufacturers 52% based out of the Pearl River Delta and 38% in the Yangtze River Delta. PCB Production hubs exist in the regions::

South/central: three neighbouring provinces in south western, central and south-central China (these include the industrial cities Chongqing, Wuhan and Changsha) account for 42% of Chinas PCB revenue East: accounts for 27% of China PCB revenue.

Japan: is the second largest PCB manufacturer globally in terms of revenue; it generated about US$8 billion in 2011. This represented a 14.9% decrease on the year 2010 primarily due to the impact to the PCB industry supply chain of the earthquake which struck Japan in March 2011. Large Japanese players; CMK, Ibiden and Nippon Mektron have their manufacturing facilities across Central and Eastern Japan (Gunma, Saitama, Gifu, Aichi and Ibaraki prefecture). BT resin is an essential component for PCB manufacture. Currently more than 90% of BT resin production happens in Japan.

Thailand: Southeast Asia is increasingly seen as an alternative PCB manufacturing location, as rising costs and environmental pressures in China compel vendors to explore other production bases. In 2010, Thailand accounted for about 2.1%% of the global PCB revenue. Mexico: In 2011, Mexico accounted for about 5.7% of the global EMS production with revenue of US$21 billion. In 2011, direct EMS labour rates were more stable and lower in Mexico than in China. The city of Guadalajara, known as Mexicos Silicon Valley, is a major hub for PCB manufacturing. Global PCB manufacturing companies like Sanmina, Flextronics and Jabil Circuit have their facilities in the city. According to Charlie Barnhart and Associates, a strategic consultancy focused on the EMS sector: With a demand market in the United States, proximity makes Mexico the prime EMS manufacturing destination. The relatively short distance allows for quick turnaround time, reduced transportation costs, and lower inventory requirements. These are essential factors responsible for the growth and expansion of the Mexican PCB industry. Hungary: Europe accounted for 2% of the worlds PCB production in 2010. Hungary is the leading country in Central and Eastern Europe (CEE) in the Electronics Manufacturing Services (EMS) sector which includes PCB manufacturing. It is also one of the major EMS hubs in the European Union (EU) and accounted for 20% of EMS in the EU in 2010. There are twenty medium-sized and large EMS providers (by revenue), including Foxconn, Jabil Circuit, Flextronics and SanimaSCI, that have setup plants in Hungary before tapping into other CEE countries. EMS manufacturing operations are carried out of custom free zones in Hungary. Romania: is one of the fastest growing EMS manufacturing hubs in Central and Eastern Europe (CEE). Several plants of major EMS companies like Celestica, Elcoteq, and Flextronics are located in Romania. The CEE region is local to the Western European market, has low taxation and cheap labour. These factors have led to new plants being created here and others being relocated here from Western Europe. Tier 2 The production of CCL is concentrated in Japan which accounted for 70% global production in 2011. Mitsubishi Gas Chemical Company Inc. and Hitachi Kasei Polymer Co. Ltd.are the two major companies which are responsible for Japans market share mentioned above. Other major players include Taiwan-based Elite Material Co., Ltd, Iteq Corporation which has plants in China and Taiwan, and Guangdong Shengyi Sci. Tech. Co. Ltd., which is based in China.

Are there any natural substantial risks within these geographies? Within the geographies in question where do the countries sit in terms of environmental pollution

The full State of Flux Supply Chain Risk Assessment report contains 22 pages and utilises 170 reference sources. Questions covered in the full report but not in this sample are detailed in the Title column (second from left). Risk scores for each section are detailed in the full report.

Within the geographies in question where do the countries sit in terms of Corporate and Social Responsibility (CSR)

2011 2012

Industry/Supply Market Specific Economic Exposures

Printed Circuit Boards Copper Clad Laminates

Are there any changes in the cost base of this category? How well is demand and supply balanced for this category on a Global, Regional and Local basis?

What effects do currency fluctuations have on the availability of supply/financial viability of the suppliers?

Are there any issues regarding dependence upon specialist skills that are becoming scarce to supply

this specific category? Are there any low cost entrants in the industry?

2011 2012

Industry/Supply Market Specific Political Exposures

Printed Circuit Boards

Copper Clad Laminates

Are there any clear Political agendas being played with this category? Are there any current or impending regulatory controls that could affect the economics and supply of this category eg Trade embargos, Trade tariffs, etc? In the nations that supply this category what is the industrial relations history and prospects? In the nations that supply this category is Political unrest/civil disturbance/terrori sm an issue that could affect supply?

2011 2012
Industry/Supply Market Specific Structural Exposures

Printed Circuit Boards

Copper Clad Laminates

What level of financial stability prevails in this supply chain? Is there any specific investor concentration for this supply? Are there any market sector dynamics that could affect availability of supplies eg Merger and Acquisition activity, collusion between suppliers, Monopolies? Is this market one with consistent demand or one with high peaks and low troughs? Are there any clear potential logistical barriers in this market? Are there any patent/copyright/li censing/IP issues that could affect supply of this category? Please describe the location of the category in its product life cycle-Develop/Launch, Growth, Maturity, Decline?