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14th Annual Fleck Connection Congress

The 14th annual Fleck Connection Congress, sponsored by Fleck Research and Global Conventions—divisions of Global Connector Research Group—was held October 21-23, 2002, at the La Costa Resort & Spa, Carlsbad, California.

FCC 2002 conference was attended by over 200 senior executives of the connector industry from the United States, Canada, Germany, France, the United Kingdom, China, Japan, South Korea, Switzerland and Singapore.

Summarizes the pertinent issues and topics addressed by the senior executives who were speakers at the FCC.

Speakers & Topics at FCC 2002
Justin Moll - Marketing Manager
“Backplane Evolve to Meet Increasing Bandwidth Demands”
Cisco Systems
Bill Bender - Strategic Commodity Mgr.
“So you Wanna be a Cisco Supplier?”
Connector Service Corp.
Doug Spitler - President
John Hermann - Senior Vice President of Operations
Brian Tracey - Vice President of Business Dev.
“Why Should You Outsource Your Manufacturing?”
Decision Track
Tom Di Stefano - President
“Wafer Level: The Next Generation in Semiconductor Packaging”
Delphi Connections System
Kirk Ulery - Global Computer & Peripheral Market Manager
"Automotive Connector Trends and Outlook From a Different Perspective”
Emerson Network Power
Joe Iamartino - Vice President of Technology, Optical Connectivity Division
“Parallel Optical Interconnects for Enterprise Class Server:
Needs &Technology Solutions”
Fleck Research
“2001/2002 - Resulting Tumult & Revolution of the Industry - How to Adjust”
FONS Corporation
Randy Reagan - Director of Engineering
“Trends in Fiber Cable Assemblies”
Ed Cady - Market Development Director
“New Connector/Cables for Serial and Bandwidth Above 10 Gbits/s”
Merrill Lynch
Jerry Labowitz - First Vice President
Steven Fox - Director
“View From Wall Street on the Electronic Supply Chain”
Silicon Bandwidth
Josh Nickel - Research and Development Engineer
“Design Challenges to Achieve Signal Integrity for High Bandwidth Connectors”
Speed Tech
Jack Chang
“Taiwan Connector Companies Current Status and Future Strategies”
Sun Microsystems
Bidyut Sen - Hardware Manager
“SPARC Micro Processor Packaging Roadmap”
Suyin USA
Steven Lee - President/CEO
“Manufacturing in China"
TYCO Electronics Corporation
Minoru Okamoto - Vice President Global Communications
“The Electronics Industry’s Changing Business Model: Challenges and Responses”
Ray Alderman - Executive Director
“The New Order”
Xanoptix, Inc.
John Trezza - President & CTO
“Parallel Optical Interconnects for Enterprise Class Server:
Needs &Technology Solutions”

The Industry Revolution -- How to Adjust

Conference host Fleck Research opened the day and a half of speakers’ presentations with a look at the disastrous downturn of 2001, the second year of decline in 2002 and what to expect in 2003 -- major business issues facing the industry and technology trends impacting the industry.

The year 2001 saddled the interconnect industry with its worst decline in 41 years, Fleck reported, citing the decrease in sales of connectors (-21.3%), cable assemblies (-24.6%) and backplanes (-29%) from 2000 revenues. The total interconnect industry, he noted, was down a collective 22.5%, from sales of $45 billion in 2000 to just under $34 billion in 2001.

In the current year, which was expected to see a bottoming out and upturn in sales, the recovery did not materialize. Consumption demand remained soft, price erosion was high and the inventory workoff and shift of manufacturing to China continued, exacerbated by the impact of currency exchange rates.

The demand remains soft in 2002, Fleck declared, noting that sales in the telecom industry, the hardest hit demand sector, are down 35% from last year. Also showing significant declines are

computers (-21.8%), communications (-21.3%), datacom (-26.3%) and office automation (-22.8%). Only the military/aerospace sector, prompted by the events of last September 11, showed an increase in sales, up 2.5%. Additionally, price erosion hampered the telecom industry (-15%), computers (-14.8%) and consumer electronics (-14.5%) the hardest, with even military/aerospace showing a negative 1.9% in that category.

The electronics decline prevailed worldwide -- with the notable exception of China, which has posted a sales increase in electronics overall of 14.6%, or $1.4 billion worth of sales, so far in 2002. Factory shipments in China were up 9.2% and down in double digits throughout the rest of the world. In the interconnect category, worldwide shipments were down 14%.

The future appears somewhat brighter, Fleck said, predicting a consumption demand increase of 7.6% in 2003. Worldwide factory shipments are expected to rise considerably, led by China at 10.3%, while interconnect shipments are forecast for a 5.8% increase. Future years should see year-over-year increases ranging from 5.2% to 8.2% through 2007.

With the United States on the threshold of another military conflict, Fleck Research forecasts a 24% increase in military connectors, cable assemblies and backplanes worldwide for 2003. Medical interconnects also will see improvement, increasing 11.5% from 2002 to 2003. The industry will return to its 1999 levels by 2006, Fleck predicted.

Cisco a Demanding Manufacturing Target for Suppliers

Bill Bender became global commodity manager of Cisco Systems in June, 1998, following six and a half years with Sun Microsystems in a variety of supply management positions. He is responsible for leading a global, cross-functional team in defining and implementing Cisco’s supply base and commodity strategies for connectors and cables.

The Internet has changed the way we work, Bender told FCC attendees. It’s a productivity enhancer which is forecast to reach $5 trillion in transactions by 2005.

Cisco produces the broadest product line in the interconnect industry, Bender stated, noting that the company amassed $22.3 billion in revenue during 2001. The company has 36,000 employees, $21 billion in cash and no debt, with an ever-increasing market value.

Prospective preferred suppliers to Cisco must present a competitive pricing strategy, he declared. Cisco works with leading suppliers of all material, but the company’s manufacturing landscape is changing, with fewer partners in the mix.

Automotive Connector Trends & Outlook From a Different Perspective

Kirk D. Ulery, global computer and peripheral market manager of Delphi Connection Systems, is responsible for expanding the company’s product offerings to both the computer and medical markets. His company’s primary focus is supplying automotive components and systems globally, with growing business in non-automotive markets.

Today’s vehicle architecture, Ulery pointed out, contains over 6,400 terminals and as many as 500 connectors. The automotive industry demands a wide array of connection systems -- systems designed for harsh under-hood applications, low-energy systems for automotive electronics, high-speed multimedia and infotainment applications, custom connection solutions and application specific solutions.

Over 39 million passenger cars and 17 million light trucks are manufactured every year, he noted -- with General Motors (nine million) and Ford (8.2 million) ruling the roost and the top 15 manufacturers producing over 95% of the world’s cars and light commercial vehicles. While the market is dominated by large, multi-national vehicle manufacturers (VMs), today, Ulery said, the future industry will be composed of fewer -- and larger -- global VMs.

Of the $6.6 billion world automotive connector market, he pointed out, $2.4 million of it is centered in North America. In 2006, the North American figure is forecast to expand to $2.9 out of a total market of $8.25 billion.

Ulery stated that the automotive supplier base is dominated by global companies that fully support vehicle manufacturers worldwide, however, fierce competition has thrown a growing number of these companies into financial trouble and many are exiting the business due to low margins. The remaining suppliers most provide exceptional levels of support -- while continually lowering prices every year, he said.

High-profile VM alliances and mega-mergers have hidden the rapid consolidation in the supplier industry, Ulery noted, adding that VMs demand that suppliers become design-capable globally, and suppliers must demonstrate their long-term commitments to these manufacturers, and must show continued significant improvement in delivered quality.

Companies looking to enter the automotive market need to understand that long development cycles and harsh penalties for failure are standard, Ulery concluded. Commercial connector customers continue to raise the quality and service bar to the level that automotive suppliers are used to operating.

Why Outsource Your Manufacturing?

This presentation was delivered by a triumvirate from Connector Service Corp. -- President Doug Spilter, Senior Vice President of Operations John J. Hermann and Vice President of Business Development Brian Tracey.

The optimum pathway, the executives pointed out, is an integrated manufacturing services solution that combines functional manufacturing expertise with engineering and distribution services. This results in reduced total acquisition cost, improved asset management and maximized supply chain execution.

Increased integration of services, they noted, reduces total cost, improves use of working capital and speeds up time to market for the customer, maximizing supply chain performance.

Among the industries cited as being impacted by outsourcing were telecommunications, information technology and electronics manufacturing, specifically companies such as Flextronics, Sanmina-SCI and Jabil Circuit.

The CSC speakers noted that, since 1989, the EMS market has grown from $12.9 billion to $101.1 billion in 2001. Outsourcing penetration by the EMS providers grew from 4.4% to 13.7% during the same period.

They cited Fleck’s recent statement that “There are some connector manufacturers that are deciding that it makes more sense to outsource products than make them themselves.” Reasons for outsourcing include reducing total acquisition costs, return on assets (plant, equipment, inventories, people) and capacity and capital spending constraints.

While the outsourcing model for the connector industry is in the early stages, the capabilities are expanding, they pointed out. Global integrated manufacturing centers, direct fulfillment and e-business initiatives are well under way.

CSC has the operational capabilities of assisting with design for manufacturing, design for assembly, designed-in quality and value engineering. The company offers help with technology improvements and key process improvements.

A “New Order” in Systems Architectures

The VMEbus International Trade association is an incorporated, non-profit organization of vendors and users having a common market interest. The group was founded in 1984 and Ray Alderman has been its executive director since 1996.

Alderman pointed out a number of fundamental shifts in demand from 1999 to 2002 -- telecom down dramatically, from 30% of board sales to 5%, military up dramatically, from 22% to 40%, medical growth increasing, from 5% to 15% and the industrial sector stable with slow growth from 25% to 27%. Telecom, he said, faces a “long, hard pull.”

There are just two ways to fail in the business, Alderman noted -- attacking a niche market with a commodity strategy and vice versa. The secret to success, he stressed, is diversification -- the key to staying alive in the electronics business.

The technology industry, he predicted, will remain in turmoil as the focus shifts from PCs to entertainment appliances and the eventual merger of PDAs, pagers and cell phones occurs. Medical markets, Alderman said, will develop while military and industrial will return as primary markets.

Wall Street Views Electronic Supply Chain

Changes in the electronics industry supply chain as seen from a financial perspective, were discussed by Merrill Lynch’s Jerry Labowitz and Steven B. Fox. Labowitz is first vice president of the company and Fox is a director.

Square footage of EMS companies in China was a little over three million in June of 2000, the analysts noted. Today it stands at over eight million. Electronics has opened the floodgates for outsourcing and EMS companies have grown 20% over the last three years.

Distribution revenue is estimated at under $20 billion for 2002, after reaching an all-time high of $30 billion in 2001, they stated. Inventories of electronics distributors reached 6,000 turns last year before dropping to about 3,000 today with a sluggish demand trend expected in the coming months.

The advantages of EMS companies, the analysts, pointed out, include rapid time to market and time to volume, asset deployment flexibility, leading edge manufacturing and materials procurement. Labowitz and Fox predicted the EMS market will double over the next three years, from a high of about $100 billion today to over $200 billion in 2005.

Principal companies in the connector industry, they stated, are Tyco Electronics -- which commands 23% of the market -- and Molex (8%), FCI (7%), Delphi Connection Systems (4%) and Amphenol (4%).

Fox touched on the current travails of the telecom industry, noting that its prospects for a return to previous levels of demand are years away. The demand may return, he observed, but the “salad days” have been gone for some time.

Overall, the analysts predicted, the electronic industry will remain in the longest bottoming phase in its history. More bankruptcies and consolidations are expected, but the industry always has recovered from setbacks in the past.

Wafer Level -- the Next Development in IC Packaging

Dr. Tom Di Stefano, an internationally recognized pioneer in the fields of chip scale and wafer level packaging, is president of Decision Track, a company dedicated to wafer level packaging and systems interconnect. He also was the founding president of Tessera and the co-founder of Chip Scale Review magazine.

Wafer level packing, Di Stefano told the conference attendees, has progressed from a laboratory curiosity to one of the fastest-growing trends in the industry. It is a silent revolution that is changing the dynamics of the industry, and it is going to happen, he declared.

Among the drivers in the field of product miniaturization, he pointed out, are personal electronics products such as cell phones, PDAs, camcorders, mobile computers, card PCs, memory cards and personal communicators. Among market segments, small chips are rapidly expanding, memory packages are imminent while processors are three to five years away.

Di Stefano predicted that memory packaging will employ the wafer level format within the year. The real advantage of wafer level, he noted, is more functionality in the chip. Microvia boards also are exhibiting rapid growth, driven by cell phones and miniaturization.

Trends in Fiber Cable Assembly

Randy Reagan, director of engineering at FONS Corporation, specializes in optical connectors, cable assemblies, couplers, enclosures and specialized optical assemblies.

FONS, Reagan pointed out, was the first company to achieve a rating of “certified excellence” from Telcordia Laboratories, which labeled the company’s work as the “best results ever seen.” The company’s primary applications are in telecom, which has set the standards in optical technology, he noted.

Telecommunications carriers set the benchmark for optical performance, Reagan noted. Telcordia GR326-CORE, Issue 3 sets the benchmark for reliability.

Cable preparation and assembly at FONS, he added, involves precision coiling and cutting, semi-automated stripping, automated crimping and fiber breakage elimination. Fiber optic products undergo constant testing prior to verification and certification.

Design Changes for High Bandwidth Connectors

Dr. Josh G. Nickel, a research and development engineer at Silicon Bandwidth, discussed design challenges to achieve signal integrity for high-bandwidth connectors. His current research interests are in packaging and multiconductor transmission line simulation and analysis.

Nickel discussed signal integrity fundamentals, applications and connector optimization for bandwidth. Ideally, he noted, we want each component to have equal characteristic impedance for signal continuity and minimal reflection.

One goal of Silicon Bandwidth, Nickel pointed out, is the elimination of crosstalk, which occurs when undesired signals are induced on traces of paths due to another nearby signal. It results physically from electromagnet coupling between traces and wires. To minimize crosstalk, adjacent signal wires/traces/leads should be positioned as far apart as possible and shielding should be utilized wherever possible.

TDR (time domain reflectometry) is the “sonogram” of the microwave world, Nickel stated. TDR injects a pulse into a system and observes the reflections. Its advantages include the location of discontinuities and impedance mismatches in a signal path, the identification of magnitude and phase of impedance mismatch and the estimation of noise transients. Disadvantages are its poor estimation of system bandwidth and the fact that it is difficult to determine if a non-reflected signal is transmitted, lost or radiated.

Optimizing the connector bandwidth and the board bandwidth is not sufficient, Nickel noted. First, the electromagnetic properties of the board via field must be studied and a suitable connector shape found to closely match its electromagnetic field properties.

Nickel discussed his company’s X112, a high-speed, high-density connector which, he said, has dramatically reduced crosstalk, insertion and return loss. It offers unsurpassed performance and is designed for superior signal integrity -- which is the new design driver for high-speed connectors, and therefore system-level performance.

Manufacturing in China

In the absence of the scheduled speaker, Suyin’s president and CEO Steven Lee, Fleck Research delivered a talk on manufacturing in China, noting that Fleck Research has obtained significant visibility on mainland China, beginning in the late 1980s and continuing over the past 15 years.

Fleck Research has compiled a research report providing data on 194 companies which manufacture connectors, cable assemblies and backplanes in mainland China. Company analysts have visited the families or met face to face in conferences with all 194 or these companies.

Factory shipments in mainland China for 2002 are projected to increase by 9.2% and reach $9.439 billion, Fleck noted. Production has increased from $7.4 billion in 2000 to $9.4 billion in 2002, and the forecast is an increase of 10.3% to reach $10.4 billion in 2003.

The three elements which impact the year-to-year change in production in mainland China, he said, are consumption at the OEM/EMS level in China, price erosion and the transfer of products from other regions of the world. Price erosion during 2002 averaged -16.6% across all product lines and amounted to $1.598 billion.

Regarding transfer of products from other regions of the world, the impact in 2002 was the added production of $1.4 billion in connectors, cable assemblies, backplanes and interconnect devices.

Connector, cable assembly and backplane makers in China are located in only 10 of the country’s 31 provinces, Fleck noted. The largest percentage of manufacturing plants, 46%, are concentrated in the Guangdong area with 89 companies represented.

Backplanes Evolve to Meet Bandwidth Demands

Bustronic marketing manager Justin Moll, strategic marketing manager for Bustronic’s parent company, Elma Electronic, discussed his company’s role in the development of high-performance backplanes.

Established in 1989, Bustronic is a member of the Elma group, which has offices and representatives in over 22 countries. It is a leader in high-performance backplanes and switched fabrics and a specialist in VME, CPCI and custom backplanes.

The parent company, Elma Electronic, was established in 1962 and has its U.S. headquarters in Fremont, California. The company is a global designer and manufacturer of high-performance electronic packaging systems and electronic components.

Among the new technologies introduced by Elma are the StarFabric backplane, the GigaBridge PCI-switching HA backplane for PLX Technology and the PICMG and VITA technologies. In 2001, the embedded computer board market for passive backplanes was approximately $2.65 billion, Moll noted, with VME comprising approximately 38% of the market.

The emergence of CompactPCI in 1998 led to the development of switched fabrics, mostly in the Eurocard format. This technology resulted in major increases in performance, high availability, less bottleneck and much higher bandwidth, Moll stated.

Taiwan Connector Companies’ Status & Strategies

Connector operations in Taiwan have expanded dramatically since the early 1970s, and their growth was chronicled by Jack Chang, president of the U.S. division of Speed Tech. In the early days three decades ago, connector companies were small, usually family owned operations of fewer than 50 people with narrow product offerings and a primitive but diversified infrastructure.

More recently, he said, smaller companies have blossomed and the huge multi-national companies have been downsized. Consolidations are taking place and companies are moving beyond computer products.

Currently, Taiwanese interconnect companies have adopted vertical integration and horizontal relationship with diversified product offerings, Chang noted. He compared the eight leading Taiwan connector companies with Snow White (Hon Hai/Foxconn) and the seven dwarfs, including Speed Tech, which reported 2001 sales of $35.8 million to Foxconn’s over $4 billion in revenues.

Mainland China has played a dominant role in the success of Taiwanese companies, Chang pointed out, noting that in 2001, Chinese production accounted for approximately $18 million of the $2.5 billion in revenues of Taiwan’s connector operations.

Although the Taiwan connector industry is strong, with a sound infrastructure, excellent delivery and competitive prices, there is competition from Chinese companies on the horizon, he said. Also, South Korea will be entering the connector market.

Speed Tech’s future strategy, Chang stated, will emphasize the fundamentals -- including engineering capabilities, logistic operations and training programs -- and diversifying product offerings, thereby attracting foreign investments.