What you think may not be what you see.

Over the past couple months I have been in several discussions where the demise of the North American fabrication industry has been at the core of the various debates. While everyone in these exchanges was coming from different perspectives, ranging from technologist to financier to global consultant to marketer, and ranging in age from “young bucks” to seasoned retirees, the common thread of their thought process was fabrication as an industry in North America is dead or dying.

Various data points cited – accurate or subjectively interpreted – paint a bleak picture. The number of facilities is down to just over 200, with over half of those facilities under $5 million in revenue. New materials and supplies being commercially introduced are more often than not developed in and/or by Asian companies, and the reinvestment in capital equipment in North America pales in comparison to amounts spent everywhere else in the world. Yes, on the surface the picture is depressing – or is it?

Indeed, what you see may not be what you think. Each of the symptomatic data points could be viewed quite differently.

Capital investment is one such area where there’s more than meets the eye. Capital investment is made for one of three reasons: to expand capacity; to expand capability; or to replace existing capability. Sometimes you hit the trifecta, where an older piece of equipment is replaced with one with more capability and throughput (capacity), but overall bean-counters look at one of those three reasons to justify investment. North America’s relatively high-mix, lower-volume environment requires fewer investment dollars, as the focus is more on capability – technology – than capacity. Companies don’t need drill rooms with 100 10-spindle production machines, but instead can allocate that capital to higher technology-enabling, albeit maybe lower-capacity, equipment.

As the epicenter of the fabrication industry, it is no surprise Asia is where the bulk of new materials, chemistry and supplies are developed and produced. Virtually all the emphasis there has been on making better and cheaper materials to keep pace with the competitive price points demanded by high-volume portable, cellular and computing applications. But not all R&D is taking place in Asia, and not all materials R&D is even taking place within the traditional supply base. Several large, US-based OEMs have formed consortia alliances with major universities where new materials are being developed, currently in prototype volumes, and IP is tightly controlled.

Equally interesting are those companies behind these impressive new materials, technologies and processes. Many of the largest OEMs have found it’s the little guys left in fabrication who are the most creative, adept and reliable to partner with. That is not to say the large companies are not doing impressive things, but it is a reflection of the need – and benefit – of working with those that remain, regardless of size. And it is another indication that what you think may not be what you see.

For generations the garage entrepreneur has been the change agent for a product, industry or society. The small can move with less red tape and other imposed restrictions that can thwart innovation. Smaller organizations can focus their efforts. When focused, that innovation can harness – or re-harness – existing capital equipment or take a risk on a new, less-proven investment the big guys just won’t. Ditto, for some companies R&D consortia could be considered too much risk for too little reward, while the smaller player may view the risk as an opportunity.

When the pundits consider the demise of North American fabrication in my opinion they underestimate a couple of important intangibles that differentiate our industry from others.

First, the entrepreneurial nature of our industry. Wall Street has never embraced circuit board fabricators in part because, as an industry, we are scrappy risk-takers.
Established money hates risk, even more when the risk-takers are following a “hunch.” That is how innovation operates, however. Disruptive technology rarely comes from a staid, large company. True innovation comes from taking risks, and often smaller players have a greater appetite for opportunity.

Second, in North America some industries with the greatest need for radical new materials, processes and technology are seeking a more nationalistic approach to R&D, which lends itself to working with nontraditional innovators in a consortia environment. The ability to scale up to low-cost, high-volume is less important to these industries – and innovators – as being able to respond quickly and securely.

Finally, with the commercial volume now established in Asia, those fabricators remaining in North America have the opportunity to make a simple, albeit not easy decision: to just survive or to thrive!  Certainly there will be fabricators that will milk their assets, invest their capital unwisely, and ultimately founder. Others, however, will invest in new technologies, processes and the capital equipment of the future, retrain their workforces, and engage customers and consortia to best leverage their resources and maximize their opportunity for long-term success. These latter companies are the scrappy risk-takers that, like the companies that founded and established our industry, give good reason to believe the demise of North American fabrication is grossly overstated.

While it is easy to compare today's data to those of the past, make sure you fully understand all the interpretations of those same data points, with an eye toward the future.

Peter Bigelow is president and CEO of IMI (imipcb.com); pbigelow@imipcb.com. His column appears monthly.