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Sponsored by Fleck Research and Global Conventions--divisions of Global Connector Research Group, Inc.--the 8th annual Fleck Connection Congress was held September 24-26, 1996, at the renowned La Quinta Resort & Club, in La Quinta, California. La Quinta is located in the heart of the Southern California desert neighboring the communities of Palm Springs, Rancho Mirage, Palm Desert, and Indian Wells.

This management conference was attended by over 200 of the industry's senior executives from the U.S., Canada, Germany, France, U.K., Sweden, Italy, Japan and Singapore.

The theme of FCC '96 was Adjusting to the New Business Realities of Our Industry's Technological Changes. Approximately 20 speakers--including CEOs of connector manufacturers--addressed the Congress discussing the U.S., Europe, Japan, and the Pacific Rim. Also included were OEM purchasing executives, OEM executives discussing the impact of technology, and a leading economist within our industry.

Diversified Industry Attendance

Attending the seventh annual FCC were connector, cable assembly and backpanel manufacturers from every region of the world, as well as distributors. Additionally, among the attendees were numerous OEMs who are on the leading edge of technology. In fact, five of these OEMs--from Nokia, Motorola, Sun Microsystems and IBM--were represented by speakers. A number of vendors to the connector manufacturers, as well as raw material suppliers, were in attendance.

FCC's Purpose

FCC was conceived for the purpose of bringing together senior management within the industry. Its mission has been accomplished in that some 75%-80% of all attendees carry the title of Chairman, CEO, President, COO, Vice President or General Manager. While there are numerous trade shows within the connector industry that provide the forum for the technical, engineering and marketing segments--as well as an arena for technical papers--the Connection Congress was created for Management.

The 1996 8th Annual FCC afforded, as it has in the past, the opportunity to obtain a reading on current industry trends and key business issues in every region and country of the world; the latest points of view related to the changes in the business environment and how long the industry growth will last; technical experts describing the forces of technology upon connectors, cable assemblies, backpanels and packaging.

FCC enables senior executives to meet and network with each other. Within the corridors of FCC, many mergers and alliances, strategic alliances and joint ventures have their genesis.

Distinguished Speakers

This year's distinguished group of industry executives addressing FCC is listed below in the sequence of their appearance on the program.

In the morning session of Tuesday, September 24, speakers were:

  • Fleck Research
  • Bill Strobel -- VP of Sales, Thomas & Betts
  • Larry Paulson -- President, Nokia Products Corporation
  • Howard Poulson -- Group Chief Executive, Premier Farnell plc
  • Tom Finn -- Director of Worldwide Supply Base Management, Solectron Corporation
  • H.C. Tan -- Vice President, I/O Engineering Group, Foxconn International/Hon Hai
  • The luncheon speaker was Michael McAndrews -- Marketing Manager, Motorola

In the afternoon session of Tuesday, September 24, speakers were:

  • Ray Alderman -- Executive Director, VITA (VMEbus International Trade Association)
  • Leon Machiz -- Chief Executive Officer and Chairman of the Board, Avnet, Inc.
  • Jerry Labowitz -- First Vice President, Merrill Lynch
  • Randall Rockershousen -- Electrical Distribution Systems, Ford Motor Co.
  • Norman Siekman -- Vice President, ADC Telecommunications, Broadband Connectivity Division

In the morning session of Wednesday, September 25, speakers were:

  • Michel Cuilhe -- Executive Vice President, Framatome Connectors International
  • John Powers -- Director of PCS Market Development, Motorola, Cellular Infrastructure Group
  • Jose Mejia -- Vice President, Commodity & Supplier Management Group, Bay Networks, Inc.
  • Bill Bender -- Commodity Manager, Sun Microsystems
  • George Graeber -- Executive Vice President, Cable Design Technologies
  • Adge Hawes -- Advisory Architect, IBM, Storage Systems Division, U.K.

In the afternoon of Wednesday, September 25, there were optional events available to attendees. These included a golf tournament on the world famous Dunes course and four workshops.

The workshops covered such topics as Technology Trends in Computer & Telecom and Their Impact upon the Interconnect Industry; Technology Trends in Communications & Datacom and Their Impact upon the Interconnect Industry; Key Market and Product Line Statistics by Region of the World, Including High-growth Product Lines; and U.S. Distributor DTAM for Interconnect Products (Resale, GPM and Inventory).

SPEECH EXCERPTS FROM KEY EXECUTIVES

To follow are highlights from the speeches of the executives who addressed this year's FCC, presented in the order in which they appeared on the program.

Adjusting to the New Business Realities of Our Industry's Technological Changes , Fleck Research

Fleck Research opened the Fleck Connection Congress with a discussion of the key events of the year that impacted the connector industry (PCs outselling TVs, the telecom bill, microprocessors, packaging--BGA, micro BGA, MCM, CSP and flex circuits--acquisitions and strategic alliances); and how 1996 was a tough year (sales revenue results for IBM, Hewlett-Packard, Apple, Kent, Bell Micro, All American, Reptron, Arrow, Marshall, Wyle; Japanese and European markets; negative book-to-bill ratios; and the impact on the connector industry).

He then discussed current opportunities in wireless, LAN/WAN, CATV, satellite TV, consumer electronics, telecom, the end of the telecom monopoly in Europe, aircraft industry rebound, PC sales outside, set-top boxes, PCN and booming notebook sales.

Mr. Fleck concluded his presentation with an overview of his predictions for the future. Topics included the convergence of TV and PC; explosive growth of communications; upward curve on cellular phones, electronic games, portable electronics and automotive electronics; credit card migration; household energy devices; business trends in Hong Kong, Europe, Japan, China, Taiwan and Vietnam; Level 1 interconnections; distributors expanding to value-added; contract manufacturing; demographics of the world changing; driving forces of the electronics industry; trends away from traditional connectors (in flex circuits, fiber optics and elastomerics); technologies driving high growth (including desktop PCs, notebook PCs, PC LANs, high-speed LANs, datacom networks, wireless, Internet, multi-user machines, microprocessors, CATV systems, butt contacts; and broadband services to the residence); and market forecasts.


Business Profitability and Price Erosion in the Connector Industry
Bill Strobel, VP of Sales, Thomas & Betts

Highlights of Mr. Strobel's speech included worldwide electronics production by region ($872 billion in 1995 and $1616 billion by the year 2005); world unit shipments of personal computers and cellular phones (to be approximately the same in units by the year 2000); personal computer pricing (from $4,000 in 1982 to $1,500 in 1996); PC system cost breakdown (a market price of $1,800 in 1990 to $1,450 in 1995); connector pricing (from $1.25 in 1991 down to less than $0.40 in 1996); and the North American connector industry (semiconductor consumption vs. connector consumption).

Mr. Strobel also discussed the factors to be considered (such as material costs, labor costs, distribution costs, capital investment and selling expenses); decreasing product life cycles (comparing mobile phone, personal computer, workstation and disk drives); distributor operating costs (16.7%); and distributor manufacturer integration savings (consisting of receiving, purchasing/planning, invoice processing, put away, claims/shipping, returns and inventory investment--for total operating cost reductions between 30-40%).


Wireless Technologies--Driving the World Market and Interconnect Applications
Larry M. Paulson, President of Nokia Products Corporation

Mr. Paulson discussed the dynamic wireless business and how it is no different than the connector business, including worldwide growth; changes (including technical, marketing, logistics and human resource challenges); a background of Nokia (sales, employees, primary businesses-- telecommunications, mobile phones and general communications--operations; and the business of Nokia (evolution from paper to telephone poles to connectors to cable to switching to handsets).

He then outlined the wireless penetration rates (comparing Europe, the Pacific Rim, Japan and the U.S.); business from a technology point-of-view (analog vs. digital); digital (trends in Europe and the U.S., including the development of GSM, TMA, CMA, PCS and DCS); subscribers; business (10 million subscribers added in a 12-month period); and investment (total capital investment close to $30 billion).

Other topics discussed included auctions (the PCS system roll-out; the domination of AT&T, Spring and PCS Primeco); the expectation of subscribers in the near future; the change of user patterns over the years; changing complexity of the cellular business (analog versus digital; technologies driving applications; market fragmentation); the burdens of connectivity; the decrease in life cycles in consumer electronics; and the expectation of the replacement market to overpass the new market (color TV business used as an example).


The Emergence of the Global Catalogue/ MRO Distributor
Howard Poulson--Group Chief Executive of Premier Farnell plc

Mr. Poulson discussed what it means to the MRO distributor; the importance of the MRO distributor to the suppliers and manufacturers (broad range of products, ability to deal with hundreds of suppliers, service levels, technical support and increasing level of value-added services); product life cycle; globalization; and trends in the market (including global nature of products, increasingly global customers, corporate customers seeking fewer MRO suppliers, customers seeking to reduce inventory, global demand for samples/development quantities, and the Internet redefining customer access to data and pricing).

He then outlined Premier Farnell's history in distribution; group distribution structure; financials (revenues of $1.6 billion); operations (in 20 countries); corporate strategy; customer offering; sales methods (catalog styles and product lines; and field sales engineers vs. telemarketing vs. direct mail); value-added services (electronic control of customer inventory, reserved inventory, re-packing for the customer, in-depth sourcing/search and integrated sourcing); sales of electromechanical components ($510 million in 1995); sales of connectivity components ($260 million in 1995) and Premier's future promise to the supplier and the customer.


Competitive Advantage Via Supply Chain Design
Tom Finn--Director of Worldwide Supply Base Management for Solectron Corporation

Mr. Finn's presentation included an outline of Solectron's services, beliefs, history, sales performance, global manufacturing resources and materials vision); the supply chain design; materials measures of success defined by customer requirements; inventory required vs. forecast variability; what determines supply chain speculative investments; critical role of rapid "what ifs;" supply chain velocity advantages; and considerations (access to material and risk management; holistic awareness; share investment, risk and reward; and relationship evolution/responsibilities).


Manufacturing in the Far East and Exports to the Worldwide Market
H. C. Tan--Vice President, I/O Engineering Group of Foxconn International/Hon Hai

Mr. Tan began his presentation with an overview of Hon Hai (the company was founded in 1974 as an injection molder of parts; branched into connectors in the early 1980s; and began its focus on the personal computer market in 1985).

He then discussed Hon Hai's manufacturing strategies in Mainland China, including how Hon Hai positioned themselves in Mainland China because of the well-educated population, massively under-employed population, hard work attitudes, same-language and culture, and a strong desire to modernize.

Hon Hai's strategies in establishing manufacturing in the Mainland were also discussed, including 1) must be wholly-owned by Hon Hai (land, building and equipment); 2) must be vertically integrated operation (stamping, molding, plating, tooling, assembly); and 3) must provide housing, cafeteria and schooling to attract the best employees. Further detail on specific manufacturing plants was presented, including the opening of eight plants between the 1988 and 1994 in Shenzen, China with a total of 8,000 employees; and information on the Shanghai manufacturing plant (has 50 molding machines, 10 brudeurs, 7 reel-to-reel lines, 19 automated assembly lines, and 30 manual assembly lines).


How Motorola Cracked the Japanese Cellular Market
Michael McAndrews--Marketing Manager, Motorola

Mr. McAndrews began his presentation with the cellular industry background (including competition, worldwide companies (a total of 50), Motorola structure, Japanese market (which was highly regulated prior to April 1994), and Motorola's participation in the market growth.

He then discussed Motorola's history (founded in 1928, originally made parts for crystal radios, first breakthrough in car radios and walkie-talkies, emergence in semiconductors and TV sets after World War II, and first experience with Japan); cellular in Japan (including hurdles with NDT and award of contract for pagers); cellular phone introduction in April of 1989; and future challenges in the Japanese market.

He concluded his presentation with an overview of the elements of success in Japan, including product leadership, high quality, good prices, language issues, deregulation, promotion and persistance.


Global Market and Trends, and the Bus-Board
Ray Alderman--Executive Director, VITA (VMEbus International Trade Association)

Mr. Alderman's presentation included information on worldwide bus boards (from $1.625 billion in 1993 to $1.898 billion ion 1994); the share of the $937.9 million VME merchant board shipments by application (military 28%, communications 23%, industrial automation 21%, medical 8%, general business 7%, simulation 3%, transportation 3% and other 7%); the magic numbers that dictate market behaviors; four products in the world (stars, racehorses, cash cows and dogs); four customers in the world (stable, specialty, commodity buyers and unstable); and four ways to make money (sales and marketing, R&D, manufacturing and legal department).

Mr. Alderman also discussed new life-cycle curves of the 1990s; the sophistication of the VME market; the quest for bandwidth (comparison of 1972 to 1992 and 1993 to 1995); bus trends--board sizes over time; and number of pins on bus connectors over time, among others.


Electronic Components Distribution--Then and Now
Leon Machiz--Chief Executive Officer and Chairman of the Board, Avnet, Inc.

Mr. Machiz's presentation included the history of connectors and distribution; the evolution of distribution (from surplus connectors after World War II to military circular connectors and beyond); the formation of Time Electronics; a new age with the advent of the computer; centralization of inventory for efficiency; the utilization of techynology to enable Avnet to offer broadline distribution, specialty distribution and the delivery of value-added services; outsourcing; consolidation; and the changing relationship between supplier and distributor.


The Connector Industry--A View From Wall Street
Jerry Labowitz--First Vice President, Merrill Lynch

Mr. Labowitz began his presentation with an overview of his background with Merrill Lynch; the three main constituencies of Merrill Lynch; the assessment of a company's ability; other factors that go into a successful company or stock (such as selling, marketing, R&D, engineering, manufacturing, finance and logistics); competitive position analysis (management, historical trends into the future, margins, etc.)

He then discussed sales growth issues, including acquisition strategies; companies with over $300 million in annual sales (only about a dozen companies in the world); industry trends relating to AMP, Molex, Thomas & Betts, Hubbel, Amphenol and Berg (including corporate sales and percentage of electronics sales); gross profits as a percentage of sales and gross margin (differences in connector versus non-connector business and differences in the way R&D expenses are handled); what affects gross margins (such as customers, product value, length of product life cycle and geographic diversification); low-volume niche products; pricing pressures; and selling and general administrative expenses.

Other topics discussed included the EBITDA (earnings before interest, taxes, depreciation and amortization); net margins (an average of 3% to 5% for most S&P companies); five-year compounded average gross; earnings per share growth; reinvestment (one of the most critical variables considered); spending; stock performance; strategic alliances; mergers and acquisitions; IPO (initial public offering); summaries for the first half of the year for AMP, Amphenol, Augat, Berg, Thomas & Betts, Molex; and finally, the current environment (PC business, labor recoveries and large customer inventories).


Automotive Trends and Procurement at Ford Motor Company
Randall J. Rockershousen--Electrical Distribution Systems, Ford Motor Co.þAdv. Vehicle Technology Division

Mr. Rockershousen discussed connector buy trends at Ford (expected to grow from $600 million to $700 million annually by 1999); Ford automotive supplier trends; the "Big Three" initiatives (QS-9000, advanced product quality planning, and U.S. Council for Automotive Research); supplier requirements (must be a full service supplier, must be among the leaders in the automotive connector industry with both terminal and housing capabilities, and must be able to achieve competitive automotive pricing); and a list of the preferred Ford full service connector suppliers (such as Alcoa-Fujikura, AMP, Framatome, Molex, Siemens, United Technologies and Yazaki).


Telecom and Communication Technologies Driving the Application of Connectors
Norman R. Siekman--Vice President, ADC TelecommunicationsþBroadband Connectivity Division

Mr. Siekman presented information on the acceleration of the migration to broadband infrastructures; telecommunications service providers (past and future); the Telecommunications Act of 1996 highlights (including the local phone market being opened to other carriers, RBOC entry into long distance, LEC obligations and LECs allowed to sell video services); the impact of Federal telecommunications legislation; the growth in high-speed service bureaus in the U.S.; Internet hosts; service providers who need partnerships with systems-oriented suppliers; changing environment; HFC network; hybrid fiber coax systems; and the forecasted deployment of interactive capable broadband systems.

He then discussed future network demands; the global cable modem market; the transition to 2-way, telephony enabled system; evolving drop connection; evolving needs in transmission technology; next generation connectivity requirements; where fiber is used; angled vs. ultra PC connector; angled polish; cable assemblies; cellular wireless network; the growth in U.S. wireless capital expenditures and cell sites from 1984 to 1995 (from zero to 20,000 cell sites); the evolution of wireless communications technologies; wireless connectors; drivers of connector growth; and the need for end-to-end solutions.


Europe--A Major Player in the Telecom and Automotive Industries
Michel Cuilhe--Executive Vice President, Framatome Connectors International

Mr. Cuilhe's speech outlined the 1995 connector business by market (automotive, telecom, professional equipment, data & office equipment, industrial and consumer); the progression of telecom and automotive in European connectors; the telecom industry European domination (main markets and trends for the future); increase in mobile phones; mobile phone consequences for connectors; connectors in telecom between 1994 and 1998; and mobile phone influences.

He also discussed the electronic equipment for the automotive industry; new relationships between automotive players; top car equipment manufacturers; Europe automotive electronics market evolution; automotive electronic equipment penetration, electronic applications, and equipment production; future electronic equipment evolution; key factors for success; main trends of traditional operators; necessity for multinational partnerships; position of various operators; and operators' strategies.


Economics of PCS Deployment
John P. Powers--Director of PCS Market Development, MotorolaþCellular Infrastructure Group

Mr. Powers began his presentation with a discussion on the wireless industry (including the differences between specifications for cellular); the wireless market (wireless vs. cellular, local exchange, and the Pan American market, including Canada, U.S. and Latin America); and significant growth factors (including continued deregulation, move toward liberalization and the formation of strategic realliances).

He also discussed increased competition issues; the consolidation of technology choices (trends and what it takes to serve a large number of subscribers); the markets in Brazil, Mexico, Argentina and Venezuela; capital expenditures (the average cost per subscriber, A and B band carriers--including Cellular One, AT&T Wireless, RadioPhone, RBOCs and local telephone companies-- and trends toward CMA); top ten cellular operators technology choices; GSM; PCS technology choices (market divisions between CMA, GSM and TNA); usage of CMA in Latin America; and what this means for analog in Europe and the U.S.

Other topics included penetration rates; success factors (such as end user requirements, quality, action, price and simplicity); operator requirements (financing issues, including who should be financed--prioritize investments, market growth opportunity, ability to succeed, ability to pay, and risk assessment); and PCS in world marketplace (cellular, PCS and standardization/open architecture).


Connector Procurement Trends at Bay Networks
Jose A. Mejia--Vice President, Commodity & Supplier Management Group, Bay Networks, Inc.

Mr. Mejia began his presentation with a background of Bay Networks (including mergers and expected trends); market growth; technologies involved in (access routing, shared media, switching, routing); three major business units (commercial, Internet/telecom and enterprise); integration occurring in telecommunications, video and audio; operations; relationship between suppliers and customers; and strategies.

He then continued with a detailed description of how the relationship between supplier and customer is developed internally; supplier involvement issues; how the merge is completed and what areas are concentrated on; how it relates to the connector business; and issues concerning the design of products.

Mr. Mejia concluded with a discussion on what areas are important to them in the design of new products, including denser pitches, high pin-counts, ATM, fast turnaround, quality, reliability, listening and learning.


Connector Procurement Trends at Sun Microsystems
Bill Bender--Commodity Manager, Sun Microsystems

Mr. Bender presented an overview of Sun Microsystems (including organization structure, annual revenues (from $9 million in 1983 to over $7 billion in 1996), locations, vision, target markets, commodity team approach, supplier management, organization and measurement; technology trends and initiatives (including the focus on steering/standard committees, PCB technology and patent issues); and technology drivers.

He then discussed market forces (such as compatibility, scalability and serviceability); architectural forces (such as increased bandwidth, switching architecture and parallel processing); competitive forces; technological response to market forces; semiconductor product evolution; impact on connectors (I/C sockets, memory connectors and power connectors); procurement trends and initiatives (price projections, average pin counts and prices); among other topics.


Network and Interconnecting Cable Design Trends for Computers and Telecommunications
George C. Graeber--Executive Vice President, Cable Design Technologies

Mr. Graeber's presentation outlined cable design technologies; the focus on high growth specialty markets (such as communications, network/cables/systems, computer interconnect, and automation, sound and safety); the U.S. insulated wire & cable market composition (with an estimated 1995 U.S. market size of $15 billion and estimated 1995 world market size of $45 billion); the U.S. consumption of multiconductor electronic cable (from $1.828 billion in 1990 to $3.105 billion in 1998); U.S. consumption of flat cable (from $354 million in 1990 to $732 million in 1998); hook-up wire (commercial vs. military); flat cable (specialty applications, such as size, profile, flex life and mass termination); telecommunications cable; computer mainframe cable; personal computer cable standards (RS-232, SCSI, SSA, VESA and Fibre Channel); and computer network cable (NCR, IBM Token Ring, IBM ACS, shielded network systems and Gbps Ethernet).

He also discussed the domestic growth of computer networks (with a CAGR of 25.1%); network bandwidth requirements (100 Mb/s cable installed in less than 20% of all buildings); shielded cable systems; the zero halogen cable toxicity issue; wire and cable fire safety issues; and market trends to the year 2000 (such as the continuing growth of cable assembly business; integration of connector and cable manufactures; new fire safety codes; shielded network systems growth; among others).


Serial Storage Architecture--Unparalleled Connections
Adge Hawes--Advisory Architect, IBM-Storage Systems Division--United Kingdom

Mr. Hawes discussed the evolution of parallel interfaces (ISA, EISA, Microchannel, PCI and SCSI); serial advantages (fewer pins, higher bandwidth and cross-media transmissions); SSA (Shared Storage Array) objectives, links, topology, characters (8B/10B code), frames, addressing, flow control, error handling, and data transfers; SAT algorithm; SCSI migration; SSA-SCSI comparison; SSA-FC/AL comparison; the SSA standard (ANSI X3T10.1 committee, SSA-IA, and 40 MB/s specification under development); SSA companies (such as Adaptec, AMP, Amphenol, DEC, Fujitsu, IBM, ITT Cannon, Molex, among others); Stop Press (a convergence of SSA and FC-AL proposed by IBM, Seagate and Apple for next generation); and a summary on SSA (including high performance, reliability, and low cost CMOS).