Balancing Cost Savings vs. Offshore Sourcing Risks

So many purchasing professionals I meet are wary of exposing their company to a supply line risk by buying offshore. With good reason, it often goes wrong.

An article published by Thomas A. Foster of Global Logistics & Supply Chain Strategies highlighted the issues:

Sourcing from offshore suppliers in China, India, Eastern Europe, Latin America and other low-cost regions is so widespread that few manufacturers and retailers can be competitive unless they join in this trend. In fact, the U.S. Federal Reserve Board attributes much of the recent economic growth and low inflation to this offshore outsourcing “best practice.”

However, the downside of offshore sourcing receives far less attention at the Fed or in any boardroom — at least until something goes wrong.

The more a company sources from distant, low-cost lands where financial transparency, operating visibility and reliable logistics are practically unknown, the risk of serious supply chain disruptions increases geometrically.

In a recent supply chain risk assessment study, Aberdeen Group, a Boston-based research firm, said that more than 80% of supply management executives reported that their companies experienced disruptions within the past two years serious enough to negatively impact their companies’ customer relations, earnings, time-to-market cycles, sales, and overall brand perceptions.

Let’s put some real numbers to this.

The cost of establishing a source offshore in time and out of pocket expenses can exceed $50,000. The cost of attempting to resolve an issue by revisiting a supplier, an equal amount, considering the airfare and hotel alone can top $10,000 per person … and there’s no assurance the problem will be resolved.

Not a huge number to you? Now add the cost of disappointing customers: big. The writeoff of bad product: big. And, to pour salt in the wound, making several trips before you realize there will be no resolution.

Real life case in point. One customer of ours had the unfortunate experience of finding 20% of the goods it received from its Asia-based supplier failed in system in the field. The supplier insisted they did not nothing wrong and would not support any reimbursement. This was after scrambling to replace units in the field for customers, and two engineers flying to China for a week. The customer finally turned to us for the rework at a cost essentially equal to the original purchase price. Ouch.

So, what does the OEM with limited resources do to compete on the same level as the big guys which have deep pockets and feet on the ground in Asia?

The answer is to shift the accountability from the offshore supplier to an experienced provider of managed PCB manufacturing services in the US. They can eliminate the risk of poor quality and greatly mitigate the risk of supply line disruption.

They do this through rigorous attention to technical detail on the front end, using only developed, strong, factory relationships, then thorough incoming inspections, and holding the factories accountable for any errors.

Basically, knowledgeable feet on the ground here, with the skills and experience to manage complex Asia-based electronics projects, and perhaps most importantly, financially accountable for the results.

Eliminating risk and capturing the savings from offshore. That is a pretty decent balance.

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To Minimize BTC Voiding, Start with the Right Solder Paste

Let’s see what’s up with Patty ….

Patty was just dropped off at O’Hare airport after finishing a 3 day workshop on Lean Six Sigma statistics, design of experiments, and statistical process control. Interestingly, the students were lawyers. In recent years more and more service-based organizations were adopting lean Six Sigma and it was a long time since Patty had taught such a workshop to engineers. She noted that although the lawyer’s math skills were a bit rusty, they were very good listeners and picked up the math behind lean Six Sigma topics very quickly.

After paying the cab driver, she entered the terminal and went to see an agent. She was early enough to get an early flight home, so she had called the people at the online ticket agency during the cab ride. They said the change fee would be over $300, she felt that was just too much to pay. She was delighted to see that it was only $75 at the terminal.

She looked at her paper boarding pass and saw that she had more than two hours, just enough time for a relaxed lunch at Wolfgang Puck while she read USA Today. Patty was the only person her age that she knew who enjoyed reading a paper newspaper, she guessed that she picked the habit up from her dad.

The two hours went by quickly and she was standing in line waiting to board the flight to Boston’s Logan Airport. She had now been at Ivy U for a few years and traveled much less than when she worked at ACME. She had forgotten how stressful and unpleasant traveling was. As she stood in line, the man in front of her put his smartphone on the scanner and the scanner could not read the QC code. He and the agent fumbled for a while before they got it to work. This was another place where, in her opinion, paper was still king.

Patty got on board and settled into her middle row seat. She groaned a little bit at how uncomfortable and cramped it was. Patty was reminded of what her dad used to say in situations like this; “I know it is a bit uncomfortable, but just think what the 49ers went through to get to California,” he would tease.

After takeoff, she turned on her laptop. She absolutely had to send some emails, so she signed on to the onboard WiFi. She got sticker shock when she saw that it cost $18.95!  Even though Ivy U would pay for it, the high price galled her.

After she finished the emails, a wave of fatigue swept over her and she needed a break.  She chuckled to herself when she thought of a recent event. She had taken two of her best teaching assistants (TAs) to lunch and the conversation somehow came to discussing people who hid Jews from the Nazi’s in World War II. Patty mentioned to her two young protégés about an excellent book and movie she read and saw as a teenager, The Hiding Place. The story is about Corrie Ten Boom and her family and how they hid, and hence saved, many Jews from the Nazis in Holland during WWII. Although the movie was made before she was born, it was shown at Patty’s church every few years, for the new sets of youngsters who came along. Patty mentioned to her two superstar TAs that the film was produced by Billy Graham’s organization.

“Who is Billy Graham?” they both asked in unison.

Patty struggled to keep her composure as she explained who he was. How could they not know this?  She decided to examine the situation a bit further.

“OK, you two. Who was Mickey Mantle?” Patty asked.

The youngster’s both looked at each other.

“We have no clue,” they chuckled.

Patty though she would try a few more, “Nikita Khrushchev?”

Nothing.

Roy Orbison?”

Nothing.

Patty started humming a few bars of Orbison’s most popular song.

“Oh, Pretty Woman,” the boys said in unison.

Patty thought to herself, “Each of these young lads are the best student in every class that they take and yet they don’t know these ‘celebrities’?”

The next day Patty arrived at her office early to meet with Rob and Pete to discuss how the presentations that they were making for Mike Madigan on voiding were coming. Patty had arrived so late the night before, that Rob was already asleep. She did not see him in the morning as it was her turn to get the boys ready for school and he was off early to get in his 90 minutes of exercising. So, they had no chance to discuss the progress of the presentation.

“Pete, your presentation of BGA voiding is terrific. How is my hubby doing on BTC voiding?” she chuckled as she looked at Rob.

“I feel like I’m going to get yelled at ’cause I didn’t do my homework,” Rob said sheepishly.

“Yikes! We only have a few days,” Patty responded. “And I have yet to do my part on using solder preforms to minimize voiding,” she went on.

“I’m only teasing. I have quite a bit of info,” Rob said.

“We have been out of the mainstream for a while and one thing is for sure, voiding is the number one issue among assemblers today.  So many people are assembling QFNs and are struggling with voiding. Voiding with some solder pastes can be over 50% of the area,” Rob went on.

“Wow! With 50% voids, think of how poorly the heat is being transfer away for the BTCs,” she looked at Rob and chuckled. “Remember, ‘BTC’ not ‘QFN,’ Patty went on.

“Yes ma’am,” Rob jokingly replied.

“Can you imagine the effect on reliability and field issues with so little heat being removed? The ICs inside the BTCs must be frying” Pete added.

“Voiding at this level has got to be really costly,” Patty mused.

“One of the things that really helped me was that I found quite a few experiments on voiding,” Rob added.

“What were some of the key points?” Pete asked.

“Well, as you might expect, the solder paste is typically the most critical part of the process. Some pastes have voiding lower than 10% with others above 50%,” Rob replied.

“What about the process?” Patty asked.

“Well, the reflow profile can be very important, as is controlling the PWBs and components. But, with the best pastes, it has been found that you can control the voiding content even if you can’t change the reflow profile and the PWBs and components have some issues,” Rob responded.

“Look at the x-rays of poor and good voiding between two pastes,” Rob said.

“What a difference,” Patty and Pete said in unison.

“What about the stencil design and venting?” Pete asked.

“Chris said that stencil design for venting is not as critical as once thought, although a window pane design is usually used,” Rob replied.

Figure 1.  The window pane design for the stencil is used to permit venting.

Figure 1.  The window pane design for the stencil is used to permit venting.

“So it sounds like starting with the best solder paste solves 90% of the problem and adjusting the process, say with the right reflow profile, helps refine the result,” Patty summed up.

With this Rob went off to put the finishing touches on his PowerPoint® slides for his part of the presentation, while Patty started working on her part of the presentation on using solder preforms to reduce voiding.

Two weeks later.

Patty’s mom and dad came for a visit on a Sunday. Her mom had graciously offered to bring a complete Sunday dinner. Patty, Rob and the boys were grateful for the delicious meal. As they began to eat, Patty shared the story of her best students not knowing Billy Graham, et al.

“But, what was even more surprising was that I ended up asking 10 or 20 more students and only one had ever heard of any of these four ‘famous’ people,” Patty sighed.

“It’s your age,” Patty’s mom replied.

Thirty years old was not that far in the rear view mirror for Patty and she really didn’t consider herself old.

“These youngsters were born in the late 1990s, a generation after these people were prominent,” her mom went on.

“Mom’s right.  Do you know Billy Sunday, Ty Cobb, Glenn Miller, and Trotsky?”  her dad asked.

“Who?” Patty asked.  And then she chuckled, getting the point.

After a brief pause, she said, “I do know who Trotsky was; tell me about the others.”

Cheers,

Dr. Ron

As always, this story is based on true events.

 

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BGA Voiding in Electronics Assembly

Patty had to admit that the last few weeks were exciting.  Her talk to US Army Rangers and Navy Seals on critical thinking went really well.  Now, the local newspaper was asking her to comment on political polling in the current presidential primaries.  Patty was just finishing her response to the paper before a meeting with Pete to discuss the voiding presentation that they were working on for Mike Madigan.  Her response follows:

Dear Editor:

My favorite candidate was trailing in the polls by only 1% in my state, but on primary day he lost by 5%.  Why isn’t polling more accurate?

Sincerely,

Disappointed

 

Dear Disappointed,

Pity the pollsters. They have to predict what will happen by sampling a manageable number of people, say 1,000. This situation creates several challenges. The first is that their sample should represent the population as a whole. This challenge is not easy. They need to assure that the 1,000 people represent the population of the entire state. If they get an inappropriate number of old, young, wealthy, lower income, educated, less educated, etc., in these 1,000 people then their prediction will be off. As an example, let’s say that 45% of a state’s residents have a bachelor’s degree or higher, yet their sample has 60% with a bachelor’s degree or more. This difference will likely make their sample non-representative of the population as a whole and will skew the results.

Let’s go back to your candidate, whom we will call candidate A. It ends up that candidate A was supported by only 47.5% of the total population and his opponent, candidate B, by 52.5%, giving the difference of 5% that you mentioned. Let’s assume that the pollsters establish a good sample of 1,000 people that is very close to representing the state as a whole. It is unreasonable to expect that the 1,000 people polled would exactly have 47.5% or 475 supporting candidate A, due to statistical variation.  To show the likelihood of a number different than 475, we have to use the binomial distribution as seen in  Figure 1 below. Note that there is about a 10% (0.1085 in the figure) chance that a population of 1,000 will have 495 or greater supporting candidate A. This uncertainty, added to the difficulty of establishing a perfect sample, makes polling error of 5% or so not uncommon.

Figure 1.  Note that, even though 475/1,000 is the most likely, if the larger population has 47.5% supporting candidate A, there is a 10% chance a sample of 1,000 could have 495 or greater favoring candidate A.

Figure 1. Note that, even though 475/1,000 is the most likely, if the larger population has 47.5% supporting candidate A, there is a 10% chance a sample of 1,000 could have 495 or greater favoring candidate A.

 

Just as Patty finished her response, Pete came to her office door.

“Hey kiddo! Can we go over my thoughts on the voiding in BGA balls section on voiding for Mike Madigan?” Pete asked cheerfully.

“Sure. What do you have so far?” Patty asked.

“I’m focusing on the importance of the reflow profile.  Have you seen this graph,” Pete began.

Figure 2. The hot soak profile produces the fewest voids in CSP and BGA balls.

Figure 2. The hot soak profile produces the fewest voids in CSP and BGA balls.

“Wow! That really shows the benefit of a hot soak profile over a cool soak profile. But, I am most surprised at how much benefit a hot soak profile has over a ramp-to-peak profile (RTP),” Patty commented.

“Isn’t the timing of the higher temperatures important, too?” Patty asked.

“My next point precisely. Look at this graph,” Pete said enthusiastically.

Figure 3.  The combination of the reflow profile and flux characteristics that produces outgassing before the solder becomes liquid (the red curve) will minimize voiding.

Figure 3.  The combination of the reflow profile and flux characteristics that produces outgassing before the solder becomes liquid (the red curve) will minimize voiding.

“The process engineer needs to assure that most of the flux is volatilized before the solder melts, as in the red curve, not as in the black curve where almost all of the flux is outgassing during the melting it the solder (Tm). This situation is assured by the correct combination of flux and reflow profile,” Pete said confidently.

“Anything else, Professor Pete?” Patty asked.

“It is really helpful to work with your solder paste supplier to obtain the red curve. They should be able to tell you what type of reflow profile and solder paste will most likely provide this kind of result,” Pete finished with a chuckle.

And he added drolly. “Right … Professor Pete.”

“Rob’s working on voiding on thermal pads for BTCs right?” Patty asked.

“Yep. He said he will be ready in two days,” Pete answered.

What will Robs plan be for minimizing voiding with BTCs?  Will Patty be happy with it?  Stayed tuned for the details.

Best Wishes,

Dr. Ron

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Fiducials and Odd Boards

One of the handy aspects of getting boards assembled at Screaming Circuits is that we don’t require fiducial marks for standard process boards. I would say that we build far more boards without fiducials than with. That’s cool, but there are sometimes when fiducials really are a good idea. In fact, if you’ve got room on the PCB, they’re always a good idea (just because something isn’t required doesn’t mean that it’s not a good idea).

Some boards are more in need of the marks than others. For example, not long ago, we got a rigid flex board in. It had three separate rigid boards connected by flex, designed to be folded into a stack. It looked pretty similar to the mockup in this image:SC_1

The boards didn’t have any fiducial marks. Normally, what we do, is find a via hole, through-hole pin hole, or some similar feature to use as a fiducial. That usually works, but not always. In this case, the length of the flex varied slightly from board to board. The PCB color was also very low contrast, which made it difficult for the machine to consistently recognize any mark we picked.

That meant our machines had a hard time finding the “home” spot, and we had to reset for each of the connected boards. Finding a spot on one board did not guarantee that we’d know where to place parts on the other two boards in the set.

In this case, it would have been far better if the boards were a consistent distance apart, and if each of the three boards had a set of fiducial marks.

What makes a good fidicual?

Most CAD packages have fiducial marks in their components library. Basically, it needs to be a metal dot surrounded by an area without any copper or solder mask. More than one is best. It should be an asymmetrical pattern that can only be oriented one way.

I’ve got some more details in this article here.

Duane Benson
Routed up like a fiducial
Another rigid flex in the night

http://blog.screamingcircuits.com

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Voiding: A Critical Issue in Electronics Assembly

Folks,

Looks like Patty and the team have a new assignment from Mike Madigan. Let’s look in ….

Patty had just waved to her twin boys as they got on the school bus when her mobile phone rang.  The voice was unfamiliar.

“Professor Coleman, this is Mel Ott.  I’m doing some classroom trading for a bunch of Navy Seals and Army Rangers at a location about an hour from Ivy U. I wondered if you could conduct a workshop on critical thinking for these folks?” Ott asked.

Before Patty knew it, she had agreed to do it. As she drove to the university, she kept on thinking,

“Me teaching Army Rangers and Navy Seals!?”

However, a few moments later, an outline for a workshop was forming in her mind. One topic would be: Which animal is implicated in more human fatalities in the US each year?

  1. Bears
  2. Mountain Lions
  3. Horses
  4. Deer
  5. Sharks

A few moments later, Patty was in the Engineering building complex and was rounding the corner to her office. She saw Pete and Rob waiting outside the door.

“By the looks on your faces, I can tell that we must have another assignment from Mike Madigan,” she said with a chuckle.

“This one is a little strange, even for him,” Pete began.

“Yeah! Look at this note he sent us,” Rob chimed in.

Ever since the three of them left ACME to join the ranks of Ivy University, ACME CEO Mike Madigan continued to use their services. They were paid a fair consulting fee, which all agreed more than paid for Christmas presents and vacations. In addition, Madigan convinced the board of directors at ACME to generously contribute to Ivy U’s general fund. In the three times Patty had met Ivy U’s president, he pointed this out to her with his appreciation. So, the bottom line was that the three of them were quite responsive to Mike’s requests.

Together they read his note:

“Team, our biggest customer is concerned with voiding. They claim it to be their number one concern. Since the three of you left, we have drifted a bit in keeping on top of these things. I am away for a week in Eastern Europe and my wife and daughter are joining me after that for a bit of a vacation in Slovakia. My wife’s heritage is from there, steeped in the traditions of the Rusyn peoples. So, she wants to visit the hometown of her great grandfather. Bottom line is that I will be gone for more than two weeks, without reliable Internet access, so I will be out of touch.

I need you to prepare a presentation on voiding that I (with you) will give to the customer’s president the day I get back. The presentation should have recommended actions. The pitch is at 2PM, 20 days from today. Come at 11AM and join us for lunch.”  Mike

“It’s just like Mike to give us an assignment with no details and we can’t ask him any questions and he schedules the meeting without asking if we are available,” grumbled Pete.

“I, for one, think it is great he is going on vacation,” Patty said brightly.

“Good point,” Rob added.  “I can’t recall him ever taking time off.”

“Well, what is our plan?” Patty asked.

“I’m almost certain that they are not interested in champagne voids, Rob pointed out.

“I agree, since they are mostly associated with immersion sliver finish while ACME’s customers mostly use OSP finish,” Pete added.

“I think the big issue today is voiding in quad flat pack no leads (QFN) thermal pads, BGA voiding is sort of passé,” Rob suggested.

A BGA void image, taken by CALCE.

A BGA void image, taken by CALCE.

“Oops! We are supposed to call them bottom-terminated components (BTCs), right?” Patty asked.

“OK. You’re right on that one,” Rob chuckled.

“So, let’s focus on BTC thermal pad voids. But, I think, for completeness, we should cover BGA voids, too,” Patty said.

“Pete, if you can cover BGA voids Rob and I will pull together something on BTC voids.  Let’s put it on our calendars to meet one week from today to review our material,” Patty sort of commanded.

“Yes, ma’am,” Pete and Rob said in unison.

Patty was about ready to get annoyed, but they all burst into laughter as they got up to leave her office.  Even though Patty was now a prof, she still had a lot of manager in her!

Cheers,

Dr. Ron

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TTM Again?

Not quite 18 years ago, a pair of venture capital firms bought a small Washington fab shop named Power Circuits. The following year those two firms, Thayer Capital Partners and Brockway Moran & Partners, added Power Circuits in Santa Ana, CA, to its stable. It renamed the fabricators TTM Technologies.

Today TTM is one of the largest PCB fabricators in the world, with revenues of around $2.5 billion across 25 facilities and 30,000 employees. It made some of the largest acquisitions in industry history, and unlike some of its competitors, made those acquisitions work.

It’s not without some irony, then, that one of the former directors of Power Circuits has teamed with a venture capital fund to acquire a pair of Southern California fabricators this week. 

History repeating?

Shane Whiteside, who was general manager and director of operations at Power Circuits, rose with TTM, eventually becoming executive vice president and COO before departing the firm in 2013.

With his background, Whiteside certainly would know which plants to target on the West Coast of the US. I haven’t been through KCA Electronics, but Marcel Electronics is one of the finest shops PCD&F has had the pleasure of visiting. I’m eager to see how this evolves.

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Manufacturing Loss Costs More than Just Jobs

An ex Photocircuits engineer says the gutting of US manufacturing has led to a huge shift in ownership of US assets, with dire consequences for all Americans.

“With only a very small manufacturing base left, there is a small need to make capital investments in these businesses. Capital investments are what drive productivity,” writes Jason Tillberg.

He’s preaching to the choir, no doubt, but I always find it interesting when folks support their  with details. In this case, Tillberg points to the massive transfer of ownership of US assets to foreign entities — remember Ross Perot’s “giant sucking sound” metaphor? — as a real cost paid by Americans through its inability (unwillingness?) to compete in manufacturing.

I find his thesis a bit incomplete and scattered, but he makes an important observation on capital investment and the disincentives to invest in a shrinking manufacturing base.

(As an aside, Tillberg talks about his experiences at Photocircuits in another piece on productivity written a few years back.)

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Calculating PCB Fabrication Costs (Watch Out!)

We get this question a lot: How much per square inch for a 4-layer board? (or double sided, or 6 layers … same question).  I won’t hold you to it, I promise. Right….

We understand that it is difficult to provide the boss with a project cost roll up if you do not have the board cost estimate. If you do a lot of designs you may have a feel for it or you may refer to a similar board cost from a past project. This actually can be very effective.

I have even seen online cost calculators that presume to give an accurate number.  Knowing what I know about PCB pricing, however, I can say that it just ain’t so.

Here is why calculating PCB cost is tricky and dangerous ground.

The biggest cost drivers for a bare board are:

  1. Who are you? Are you a stranger or newcomer, or do you have established relationships with board vendors? Most of us manufacturers figure the total dollar volume somewhere into the pricing equation.
  1. Board size. Square area of the board, plus the square inches of material remaining on the panel after routing your unique board shape. (You are charged by the processed panel).
  1. Production volumes in the 10 boards to 1000 boards range will have a very steep cost curve. The curve flattens out as the order rises above 1000 and gets very unpredictable at 100,000. Who you are begins to make a big difference at this level, along with your negotiating skills.

All manufacturers have a floor or minimum and it is best to ask how many boards you can get for the minimum charge. Some of the internet guys will sell one or five at a very low seemingly low cost, but your boards will have to fit perfectly into their narrow technical profile.

  1. Delivery days requirement. This can be very steep cost curve in the one to 10 day requirement range. After 10 days, little influence unless the volumes are large. We turn boards from our China factory in 10 working days and small expedite fees for five days. (Yes, we turn boards from China in five days.)
  1. Manufactured location. USA, China, Europe, Taiwan. This is usually a preferential decision, but clearly, China has the edge, followed by Taiwan. Differences can be great.
  1. Number of layers. No surprise here. From double-sided to four layers, costs will go up about 60%. From four layer to six layer add another 50%. For six to eight layers add 30%. Keep in mind that each added layer is the equivalent of a double-sided board added to the stack.  Also, remember that high-layer-count boards are often accompanied by tough technical requirements and buried vias.
  1. Technology stretching requirements, like exotic materials, super small geometries, buried vias, etc. This can be steep or moderate depending upon the manufacturer and the difficulty. Tg requirements will have a moderate impact.
  1. Surface finish, like HASL, ENIG, tin, OSP. If you can handle OSP, it is the lowest cost, followed by HASL, then ENIG. ENIG is so common these days that for low volumes, it can be as low cost as HASL.

Not the following:

  1. Number of drill hits; however, the total number drill tools used can drive costs up. Ten tools is the preferred maximum and usually can do the job.
  2. Presence or absence of a silk screen legend. (Minor influence.)
  3. Always insist on testing at no charge.

So, now think about putting all of this into an algorithm and coming up with a defensible, unchangeable answer. That is a dangerous guessing game.

My best advice is this: Get preliminary Gerbers to your preferred vendors and tell them they are preliminary. If the effort is conceptual, provide a simple description answering the cost drivers above and email your proposed or preferred vendors for a quote. (To make it easy for you, we offer a template. Go to precisionpcbs.com/pcb-manufacturing and click on the “Fab Drawing Template.”)

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60-Minute Simulation

Even for a software company, I’m sure it will be no simple task to analyze customer use and assess the ROI on the so-called “elastic licensing” Ansys just rolled out to enable customers to adjust on-the-fly to meet peak demands. I can’t imagine how crazy life will be for the poor soul who gets the hopelessly thankless task of sorting through all the customers who take advantage of this.

But the one hour rentals, the electronics simulation software company’s latest pay-per-use model, is less interesting for what it allows than for what it might foreshadow.

If I understand Ansys’s offer correctly, this is a bolt-on option for existing licensees, not a standalone offering. Useful? Certainly. Groundbreaking? Not so much.

But could true pay-for-play software be far behind? Reports have surfaced over the years of such licenses being available to certain subsets of users and in certain geographies. I’m unaware of it being rolled out on a wide level, however. It’s kind of like paying for a digital song that then disappears after five or 10 plays.

The emerging legion of new hobbyist/DIY and unconventional startups may be too attractive and otherwise too difficult for the larger players to land, however, unless they try something different. Many of these companies are not interested in paying thousands of dollars for a tool seat. They aren’t designers. They are hardware enthusiasts, and design is just a step in the process (or for some, a hurdle) to realizing their vision.

Even if the margins are weak or, more likely, the revenue elusive, will the sheer size of that audience be too tantalizing for the major ECAD companies to hold fast to their current licensing models?

 

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OEM/EMS Barrier Permanently Cut

For years we’ve been told that EMS companies are in the service business only and would never develop their own products. In one of the first interviews I did, back in late 1991, then IPC director Tony Hilvers — a leading proponent of the then-emerging CM industry (it wasn’t even called EMS then; that term was coined by Sue Mucha the following year) — insisted to me that contract assemblers wouldn’t go down the product development and branding path because it would put them in position of competing with their customers.

We can bury that old saw. With today’s news that Foxconn has, at long last, bought Sharp (for the low, low price of $3.4 billion), the loop between EMS and OEM has been drawn taut.

Not that this is ground-breaking in practice. Certainly, many, many EMS companies have, through acquisition or otherwise, developed and marketed their own products. Our 2009 EMS Company of the Year had a healthy, branded keyboard product line. And we estimated in this space in 2012 that 15 to 20% of the (then) 2,400 companies listed in our EMS directory did some degree of ODM/OEM work.

Going further, we wrote in 2015 we felt the line between EMS and ODM has been “permanently crossed.” But the Foxconn-Sharp marriage takes it to an entirely different scale.

Whether the Sharp name stays on its product lines, which range from Aquos televisions to smartphones to solar panels, and includes the OLED technology so prized by Apple that it compelled Foxconn to write the check in the first place, remains to be seen.

Either way, there’s no going back. EMS is now OEM. Going forward, who is the customer they will serve? And knowing the line keeping their suppliers from their end-customers has been permanently breached, will this spur OEMs  to reestablish their assembly operations?

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