In Trade War of Words, Huawei Goes on Offensive

“Huawei won’t move manufacturing to America.”

The headline sounds, well, weird, almost like “Tiffany’s not robbed.”

But the crux of it is a tale of global politics and business tactics growing ever-more-fascinating by the day.

In short, at the Consumer Electronics Show this week, the head of Huawei’s consumer business group issued a statement saying the smartphone maker doesn’t think much of the incoming Trump administration’s habit of calling out companies that build and import product to the US.

While Trump has thus far had mostly automakers in his sights (GM, Toyota, Ford), Apple has been the poster child for the war of words over trade. By speaking out at CES, the world’s largest technology trade show, Huawei is among the first companies, and likely the biggest, to go on the offensive.

“If [companies] move all manufacturing to the U.S., some manufacturing is not good for US companies, because costs will likely increase,” said Richard Yu, who was also a keynote at the show. “If you move all that [low-cost] manufacturing to the US, you’ll damage the US.”

Huawei has an uneasy history with the US. Its head is a former Chinese military officer Ren Zhengfei, and the company was banned from supplying telecom equipment to US government buyers after a Congressional committee accused the firm of spying on behalf of China. It is also the third-largest smartphone OEM in the world, and given the easy nature of using those devices as tools for capturing user habits and data, that is hardly less troubling.

More complex, Huawei, like Apple, depends heavily on Foxconn as a contract manufacturer. Although based in Taiwan, Foxconn founder and chairman Terry Gou is a strong supporter of China. He also is reportedly considering a run for president in his native Taiwan, a move that if successful would likely strengthen the ties between the island and mainland — and potentially further complicate already precarious relations between China and the US.

Until the new administration is officially installed in two weeks, the machinations are mostly bluster. But the chatter shows no signs of abating, and the campaigns for — and now, against — Made in America are just starting to heat up.

Taiwan’s New Gravity

How bad is the labor problem in China? We are aware, of course, of the steady hikes in wages, which have annually risen by at least double-digits for over a decade.

But now it’s being reported that Taiwan-based component makers have had enough, to the point where some are considering repatriating their production from China, or packing it up for Brazil, Mexico and elsewhere in Southeast Asia.

Now, I’m not going to put too much stock in an unsourced report. That said, the notion that Taiwan could steal back jobs from China has been floating around for months. The average salary in Taiwan has risen just 0.9% in the past decade, despite a working population of just 11 million. (China, by contrast, has an estimated 920 million working aged citizens.) Monthly wages in Taiwan’s manufacturing sector were NT 41,087 (US$1,358) as of October,  and have trended considerably more slowly than China for some time.

All in all, it’s a stunning development, given that just a few years ago China’s promise appeared mostly still in the “potential” stage. Is it possible that promise will ultimately go unfulfilled?

Onshoring

Onshoring has become the word of the moment, the expression of hope, the exposure of wishful thinking to those who try to intepret relatively small onshoring activities as major moves for job and economic recovery.

Flextronics CEO Mike McNamara pointed out in an interview with Larry Dignan of ZDNet, “As you see things that get pushed back into the US, “a la” the (recent) Apple comment it is more than just having the right cost structure. You also have to design for more automation and more different kinds of productivity. So, it is an evolution; it is not just flipping a switch. You actually have to spend a lot of work in the design, all the way through to the manufacturing process, knowing where you are going to manufacture. I think it is going to take time.”

It will not only take time, it will take incentives from the government. If Taiwan can do it, why can’t America do it? A major lure could be the lowering of one of the world’s highest corporate tax rates. Another would be to remove or simplify many of the “make-do” reporting procedures and requirements that seem to do nothing but tie a company’s hands, increase costs, and create more public sector jobs.

Taiwan’s new reinvestment incentives began last month, with an aggressive goal of more than doubling the returning investment from overseas Taiwanese businesses to $6.89 billion over the next two years. Companies need to meet certain requirements, such as producing critical components or marketing products under their own brand. Taiwan’s government announced on Dec. 6 that Catcher Technology and Largan Precision will invest in new factories in Taiwan that will create some 3,800 jobs over the next few years.

US Commitments

When I heard early this month that Foxconn (Hon Hai) chief Terry Gou offered to train Americans in electronic manufacturing I recalled one of Apple’s excuses for putting its production in Asia, much of which went to Foxconn which now has over a million workers. Apple stated that America just did not have a sufficient number of qualified and trained technicians and engineers (tens of thousands Apple said) available to build its products here.

Then I thought, why would Gou make this offer? He certainly has not shown himself to be a good Samaritan in the past. The only conclusion I could reach was that he was planning to establish assembly operations in the US and would need a qualified work force to achieve this. Note that production of iPad minis are behind schedule and market demand. Labor costs have risen rapidly and continually in the PRC over the past five years. Hon Hai has been plagued with labor problems and a high factory worker suicide rate in China during the past few years. Gou reportedly is reported to be conducting evaluations in cities such as Detroit and Los Angeles where there is a large available labor pool. It should be noted that Foxconn has debunked the stories associated with the possible establishment of a US manufacturing base. But then, is it possible that Mr. Gou has become a good Samaritan when it comes to helping the US’s manufacturing capabilities?

Meanwhile, Gou, at a recent public event, noted that the company is planning a training program for US-based engineers, bringing them to Taiwan or China to gain first hand experience in the processes of learning product design and manufacturing. He has already been in touch with MIT regarding the program. They will also be in an environment to learn Chinese.

All this begs the question: Where are the American companies, government agencies, and elected officials that claim that they want to bring manufacturing jobs back to the US? Where is the commitment? Where is the investment? What steps are being taken to entice American manufacturers to the table? What motivation is being offered? If a foreign company can find it attractive to do so, why can’t an American company find it so, too? Even more interesting is the question, “What is the U.S. government doing to keep its current manufacturing base viable and growing?”

Is Japan’s interconnect future on shaky ground? Third-quarter results from Taiwan’s leading board makers (suppliers to Apple, automotive companies, and tablet makers) indicate that the center of HDI manufacturing has already undergone a major shift from Japan toward Taiwan and China. Taiwan’s government has been extremely supportive of this and other high-tech activities and investment by its “native” electronic (and other) companies.

“Rumors” persist that Taiyo is attempting to buy Goo Chemical in Japan. Goo owns 51% of OTC, Taiyo’s leading solder mask competitor in greater China.

Associations in Agreement

Taiwan’s Vice President Wu (tallest man, center of photo) welcomed visitors and took part in the ribbon-cutting ceremony for the TPCA Show held in conjunction with the IMPACT 2012 event in Taipei. Second from the right is IPC CEO and president John Mitchell.

The TPCA and the JPCA signed a Memorandum of Understanding at the Taipei Nangang Exhibition Center on Oct. 25 to highlight industrial cooperation in a practical and efficient way. The TPCA organized an Alliance Seminar held in conjunction with the endorsement. This followed the Advance Technology Forum alliance event of this past July. The activity is supported by Taiwan’s Economic Department. Approval of funding was announced after the signing.

IMPACT 2012 was jointly organized by IEEE CPMT-Taipei, iMAPS-Taiwan, ITRI and the TPCA, and co-organized by IDB-Ministry of Economic Affairs, I-Shou University, NanKang IC Design Incubation Center. SMTA, and TTMA. IMPACT (International Microsystems, Packagiing, Assembly and Circuits Technology Conference) attracted 190 papers from 14 countries.

The TPCA held a special breakfast presentation in which an update on the industry in Japan (PCB domestic production down 45+% from its peak in 2007 as offshore manufacturing increased) by Dr. Hayao Nakahara of NTI and the industry status in Thailand presented by Bancha Ongkosit, chairman and managing director of KCE Electronics. The latter stated that Thailand lacks supply chain infrastructure and that he no longer buys from the US. He pointed out the growth of automotive electronics, stating that virtually every major car company as set up there, and that Thailand exports about 3.5 million vehicles per year. He also stated that the growth of organic substrate replacement for ceramic based electronic circuits for vehicles will continue to increase rapidly.

America’s Interdyne Systems, a new fabrication equipment entry debuted its revolutionary new concept for the mechanical drilling of 75 micron holes. Taiwan Kong King (TKK) celebrated its 35th Anniversary at the show.

It’s a Collaborative World After All
Rumors persist that an announcement of a new collaborative activity between the IPC and iNEMI is imminent.

Lenovo, the world’s second largest PC producer, will start production of its Think brand notebooks in the US next year at its fulfillment center in North Carolina. Lenovo acquired IBM’s PC division (original producer of the Think PC) in 2005. Last month Lenovo announced the acquisition of Brazil’s PC maker Comercio de Component Electronicos.

Taiwan’s intelligence chief warned that one in every three Taiwanese companies based on the mainland are facing closure due to rapidly falling profits, according to Agence France-Presse in Taipei. Another 30% are also reported to be struggling on the mainland. Last year the island’s authorities approved 575 mainland investments totaling $13.1 billion.

What Goes Around

Taiwanese printed circuit fabricators are feeling the pain of the currency crunch as their South Korean competitors have been taking advantage of the cheap won (and, in the cases of Samsung and LG, the home court advantage) to woo new orders.

As of today, one Taiwanese dollar is worth 38.1 won, down from a 12-month high of more than 40 won but still up 4.4% from the low. In the cutthroat world of PCB pricing, a 4% or more currency advantage is huge.

What’s interesting, however, is that Taiwan has noted South Korea’s government is intervening to keep the won cheap, which is precisely the argument the US government has made against China with its currency.

Oh, and most major Taiwanese board fabricators have plants in China. Few South Korean fabs do.

 

GKG: Westward Ho?

Southeast Asian assembly process equipment companies have approached Western markets in fits and starts.

A few have made inroads: From time to time, we have seen JT and Fulongwin soldering equipment at US plants, usually smaller ones (Flextronics is an exception) and often on the US West Coast. But while we’ve been reporting for more than a decade on the availability of literally scores of Chinese-made brands, some of which are very popular in Taiwan and China, it’s still highly unusual to see any make it across the ocean.

Many have been stymied by patent issues that effectively have blocked them specifically from the US and European markets. Another problem is finding good channel partners. From time to time, firms ranging from independent reps like FHP Reps and Bill West to solder paste vendors like Qualitek have tried, with limited success. Service and access to spare parts have been limiting factors.

That’s what makes Friday’s announcement from GKG so interesting. GKG has named Juki as exclusive distributor of its screen printers in the Americas. Known primarily for its placement equipment, Juki has been inching toward a full-line offering for the past couple years, having begun distributing Intertec’s selective soldering equipment in 2009.

For years, DEK and Speedline have dominated the Western printer markets, with Asys/Ekra in third with an estimated 10% share. Juki’s track record and never-say-die approach to selling makes it a formidable competitor. However, Juki has many of the same distributors as Speedline, and it is unclear that they will give up the latter for a new player.

But the real prize may be the emerging South America market. As Juki CEO Bob Black told us, “In Latin America, out major competitors are offering complete lines. To be competitive, we need to do the same.” And Juki has the breadth and depth in its service department that many standalone reps have not.

Keep an eye on this.