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Celebrating our 10th consecutive year!
 

Over 200 executives from the connector industry involved in manufacture, distribution and purchase of connectors, cable assemblies, backplanes and interconnect devices assembled at the La Quinta Resort in La Quinta, California on September 14-17, 1998. The management conferences were attended by senior executives from the United States, Canada, Germany, France, the United Kingdom, Japan, South Korea, Switzerland, Singapore and Taiwan.

The purpose of FCC is to bring together senior executives of prominent companies, provide the forum for interchange of company views and the most up-to-date intelligence on the business environment, including technology, manufacturing, distribution, finances, products, markets, and procurement. FCC also provides the arena for senior executives to carry out discussions related to mergers, partnerships, strategic alliances, joint ventures, private label and licenses.

The conference examines business issues, technology, products and markets in all industry sectors such as computers, telecom, communications, datacom, automotive, military/aerospace, consumer, instruments, medical, industrial and transportation, and further, to examine these issues in all regions of the world.


Distinguished Speakers at FCC 

Addressing the 10th annual FCC were the following industry executives, listed in alphabetical order with their presentation topics:

Business Issues Facing the Industry & Adjusting to the Dramatic Changes Occurring in the Interconnect Market

Conference host Fleck Research, opened the 10th annual FCC, highlighting the dynamic technological, business, product and market changes occurring within the interconnect industry, the economic environment around the world, the critical business issues facing the industry, OEM customer consolidations, OEMs exiting manufacturing business, Japan and Asia financial problems, the softening of factory shipments and the outlook for five years forward. A few highlights follow:

These numerous events, place the connector, cable assembly and backplane industry at a crossroads as 1998 proceeds and 1999 begins.

OEM customers are reporting downturns in sales and profits, downsizing and restructuring. These OEMs include Motorola, Texas Instruments, Apple, IBM, Intel, National, Harris, SGI, Seagate, AMD, VLSI, Zilog, Raychem, Micron, Altera, Cirrus Logic, Quantum, Xilinx, Western Digital, Cypress and Lattice, among others.

Electronic distributors are also not immune and profit declines have been reported by Arrow, Marshall, Pioneer Standard, Kent, Avnet and others. Not surprisingly, the worldwide connector industry impact has been similar. Many connector companies are downsizing, closing factory locations and shifting production outside the United States.

If these developments were not enough for connector CEOs to worry about, there is the threat of China—which produced $5.3 billion worth of connectors and cable assemblies in 1997, accounting for 14% of total world production—spurred price erosion in nearly 100 product designs by virtue of its prevailing wage as low as 17 cents an hour.

Fleck Research forecasts that it will continue to be a soft year for the connector industry. To counter this, look for American connector companies to construct upwards of 4.8 million square feet of factory space within China over the next 10 years and ramp up to 45,000 workers—leading to additional downsizing in the United States.

The variations in local currency continue to have an impact upon both sales revenues and profits among connector manufacturers. Of the 32 countries and regions around the world analyzed by Fleck Research, all but two have experienced strengthening of the U.S. dollar, resulting in a negative impact upon companies converting to the U.S. dollar. Some connector companies may counter these trends, but most will not. It could be late 1999 before we see a turnaround. If there are additional currency devaluations in Asia, it will be even longer.
Among the critical business issues facing the connector industry include:

  • Contract electronic manufacturers dramatically changing the OEM customer mix
  • Continuation of price erosion dampening growth and profitability
  • Manufacturing in China increasing to a projected $11.3 billion (19% of the world) within five years
  • Private label products becoming a larger share
  • Strategic alliances and partnerships intensifying for technology and products
  • Industry consolidation continuing with acquisition and mergers—such as AMP, FCI/Berg, Sanmina/Altron and 12 other acquisitions this year to date
  • The industry's "big bang"—consolidation of two or three of the top tier manufacturers
  • Electronic technology rapidly changing and impacting design and application of connectors
  • High-speed digital circuitry (1GHz and above), making conventional connectors obsolete

One of the most significant business issued occurring within the worldwide connector industry, is the exit of OEMs' manufacturing functions by divesting assets to contract electronic manufacturers (CEMs). So far in 1998, there have been 12 major OEM plant/asset divestitures and it is projected there will be a total of over 25 before the end of the year.

Over the last 10 years, the CEM industry has grown at an annual growth rate of 22.1%. This rate of growth is expected to continue. The impact upon the connector industry is very significant. In the past year, 11% of all factory shipments were to CEMs however this is predicted to increase to 31% within five years. For example, SCI purchased $254 million of connectors worldwide in the past year and they are predicted to become $889 million worldwide by the year 2003.



Impact of Contract Manufacturer on the Electronic Industry

W. Donald Bell—chairman, president and CEO of Bell Microproducts, in his presentation discussed the impact of the contract manufacturer on the electronic industry, as well as providing his views on the relationship of the distributor with the CEM. He underscored the following:

The chief reasons customers use contract manufacturers include cost savings, capacity availability and core competency in technology, plant and equipment.

Worldwide electronic production is forecast to grow at a rate of 7.5%, while the contract manufacturing industry is forecast to increase by 25%—31% in the United States. Industrial electronics distribution is projected to grow between 10% and 15%. Contract manufacturers are a major force in the market and are gaining share. The major electronic influences during the 1990's include: Compaq Computer cut prices significantly in 1991 - outsourced production, Internet, availability of contract manufacturing/outsourcing infrastructure, Dell direct marketing concept, Dell inventory model, successful cloning of Intel processors, under $1000 PC growth and availability (50% of units today). The impact of the above has resulted in cost and inventory reductions throughout the industry, worldwide competitive influences, time to market - time to volume, commodization of many products, cost and inventory pressures, and the emergence of the mega distributor.

Outsourcing trends include: design services (board layout), total product design, prototype, material procurement, PCB assembly, test and box build. Worldwide contract manufacturing demand was examined by region of the world. Projected in 1998 to be $89.6 billion worldwide increasing to $178.0 billion by the year 2001.

Distributors have a dilemma since production is shifting from the OEM to the CM. The distributor has to decide his business strategy — fight, align with, or join the contract manufacturer.

"Contract manufacturers have an influence on customers' designs and are driven by cost and availability," Bell noted. "They are overcoming an aversion to distributors, and partnerships will be the result."



Evolution of the CEM Industry

Mark J. Stevenson, president and CEO of Electronic Manufacturing Systems (EMS), presented a further examination of the CEM industry. EMS focuses on a niche portion of box build involving sheet metal fabrication as well as cable and wire harness assembly. He emphasized the following:

Evolution of the CEM industry has resulted from three (3) major forces. The first is market dynamics, beginning with vertically integrated OEMs, who have offloaded all but core competencies resulting in virtual corporation, transition based (lowest price) and partnership (lowest total cost). The second is relationships, beginning with overflow capacity, strategic manufacturing, local production, multi-site, multinational/flexible and parallel global production. The third is services, beginning with PCB assembly and extending to subsystem assembly, box-build, system integration, after market support, consignment materials handling and turnkey production.

The contract manufacturing industry is highly fragmented with the top 10 companies constituting less than 25% of the market. There were 49 deals executed in 1997, up 48% from the 33 consummated in 1996. CEMs are global, well-financed and diverse, and are outpacing the industry growth," he continued, adding that the markets in the United States and Europe are the largest and fastest-growing regions in the world.

Stevenson's company is an international value-added supplier to the computing industry, specializing in systems integration (box builds), vertically integrated cable/interconnect systems and sheet metal fabrication, design and prototype services, low to mid-volume, high-change environment, engineering intensive programs, simple to complex BOMs and supply chain management.



Trends in Interconnection Technology

Javad Hassan, chairman of AMP's technology advisory committee and a senior vice president of AMP for the past decade, discussed trends and interconnection technology for the year 2000 and beyond. The high points of his presentation follow:

Semiconductor technology trends include: feature size (µm) from 0.25 in 1998 to 0.7 in the year 2007; gates/chip in the same ten year period to 2M to 100M; chip size (mm2) for logic increasing from 600 to 1250 and DRAM from 320 to 1000 from the years 1998 to 2007; Voltage from 2.2 to 1.5 and I\Os from 1500 to 5000 in the ten year period.

Chips and interconnection systems are becoming faster and denser. The interconnection system is the limiting factor in systems performance and the issues include: crosstalk, reflection, delays, phase shifts, ground bounce, and EMI among others. Regarding transmission line requirements, the critical interconnection length becomes smaller as system speeds increase. in 1993, at 50 MHz 1 ns the interconnection length was 6 inches (backplane) — in 1995 100 MHz 500 ps with 3 inch interconnection length (daughtercard) — in 1997 2 Ghz 100 ps with 1 inch interconnection length (connector) — and in 1999 5 GHz 25 ps with 0.25 inch (via).

The connector trends as speed and density requirements increase, include: contact pitch — 0.100 inch to 2 mm to 1 mm to 0.5 mm; type — card edge to 2 piece; density — 10s of contacts per inch to hundreds of contacts per inch; electrical — open pin field to controlled impedance; signals — and single-ended to differential.

How does the interconnection industry keep pace with the semiconductor industry?
The interconnection system in 1998 comprises: silicon system/subsystem with 2M gates/chip, 1500 I/Os, 200-400 MHz, 1 Gb/sec, $20-30/MIP — first-level package SCM/MCM with DIP, PGA, QFP, BGA, BGA I/O, 800 — PWB with epoxy glass FR-4, 4 mils geometry, 10 Mil holes discrete passives, mixed SMT and through hole — backplane with epoxy glass FR-4, 4 mil +, 10 mil plated through hole, compliant pin 2mm 100 signal/in.

The interconnection system projected for the year 2020 comprises: silicon system/subsystem with 100M - 500M gates/chip, 1 GHz - 100 GHz, 5 - 10 Gb/sec - Terabit/sec, <$1/MIP — Backplane with DCA/BGA, low loss, 5K - 10K I/Os islands, partitioned system, integrated discrete, integrated fiber, and integrated battery/display.

Level 1 packaging will undergo dramatic change between the years 1998 and the year 2020. Packaging in the year 1998 in PGA and BGA and forecasted by 2020 to be MCM-L with high Tg laminates — BGAs from 800 I/Os to 2000 I/Os per chip — BGA pitch from 1.27 mm to BGA/DCA 4 mils — flip chip from 800 I/Os to 5000 + I/Os — flip chip pitch from 10 mils to 4 mils — flip chip size from 12 mm to 20 mm — and optical IC packages on optic MCM by the year 2020.

Additionally Mr. Hassan discussed printed circuit board packaging, technology changes over the next 20 years, when optical backplanes will appear, optical array interconnections, VCSELs, edge-emitting lasers, LEDs, and free-space optic interconnections among others.



Slower Growth Ahead, Worldwide as Well as in the United States

The economic overview for each region of the world was presented by Vladi Catto, chief economist for Texas Instruments and luncheon speaker for the first day of the FCC. Highlights of his speech follow:

The world economy will be downshifting over the next few years. The reasons identified, for the major global economic risks are the possible devaluation of Chinese currency, inaction by the Japanese government, a potential collapse of the U.S. stock market and disruptions in technology caused by the arrival of the year 2000.

The U.S. economy is also facing slower growth as a result of inventory build up and declining exports. 1997 was a peak year in U.S. economic growth, Mr. Catto predicted the country's GDP will sag gradually through 2000, then begin a slow recovery early in the next century.

The region with the most significant reason for near-term optimism is Europe due to strong industrial production and healthy export growth. However, Europe has a history of low manufacturing productivity and difficulty in creating jobs.

Particular turmoil was noted in Russia and Eastern Europe, although the economies of those regions have progressed during the 1990s. Russia, in particular, continues to struggle with a negative annual percentage of change in real GDP.

Japan is facing the most serious economic problems as the country's asset values continue to decline and its stock market remains depressed. Additionally, Japanese consumers evidence a refusal to spend, resulting in a lower percentage of change in real consumption from 4.7% in the 1970s to 3.7% in the '80s and 2% thus far into the '90s.

Not all of Asia, however, is falling apart because of the stability in greater China—which includes the mainland, Hong Kong and Taiwan. Southeast Asia—including Indonesia, Malaysia, the Philippines, South Korea and Thailand—dipped to a negative GDP this year, although a slight recovery is forecast for 1999.

Progress also is being made in Latin America as that region finally has brought inflation under control. The 1990s have seen an improvement in real GDP from 2% to 3.1%, and further optimism is in the cards for the next four years.

Viewing the world economies as a stock portfolio, Catto rated the United States as a "strong buy, while Western Europe and Latin America were given "buy" ratings. Both China and Asia/Pacific were categorized as "hold," while Russia and Japan were relegated to the "avoid" category.



The Connector Industry as Viewed from Wall Street

Ann M. Schwetje, director of technology and group research for Credit Suisse First Boston Corporation presented the view of the connector industry from Wall Street. The high points follow:

The long term industry outlook for the connector industry is: new end-product, increased connector content; shorter end-product life cycles, driving replacement demand; better inventory control relative to the past; generally strong market environment with tempered down cycles versus the past; technology changing more rapidly—more intense pricing, smaller form factors, increased ruggedness, high "pin" (connection) count, socket advances (to be done by chip maker)—low capital investment vs. other technological markets, although it is increasing; average five-year growth at high end of 6%-9%. Specific comments related to AMP, the AlliedSignal bid for AMP, Molex, Berg, FCI and Thomas & Betts were as follows: for mature "basic" industries, connector growth of 6%-9% looks attractive; "high-tech" companies will consider it a mature industry, which it is. It should be made very clear that AMP was historically mismanaged. Nearly every year the company has undergone some type of restructuring, which was "given back" in the form of pricing. Most importantly, AMP was not managing the rotation of its resources/capacity; Bob Ripp, in his new role, has the issue as a major target. Molex and Berg have been very active in responding to moving production to low cost areas, while not re-duplicating facilities.

Shortly after the AMP/AlliedSignal announcement, Berg was bought by FCI (some different incentives due to the presence of financial buyers). Molex has a small ownership in Sheldahl, a flexible circuit manufacturer; this is a key technology for CMs to possess going forward; Molex appears to be a modest acquirer rather than a target.

Wall Street believes that another auto supplier be interested in expanding into electronics.

Ann Schwetje also provided statistics related to: connector stock price index (actual and relative vs. S&P 500), connector composite (price to earnings multiple, forward 12-month EPS) and connector composite (price to earnings multiple vs. S&P 500, forward 12-month EPS), as well as data on the historical patterns for the stocks.



The Evolving Automotive Connector

Merrie Lee Soules, product line manager for connection systems at Delphi Automotive Systems, discussed the changing nature of automotive connectors in an automotive market which utilizes over 15 billion connection systems per year.

When computer-controlled engine control systems were introduced, it created the use of low-current and signal level connections. Many of these were located in unfriendly environments (on the engine and under the vehicle) requiring sealed connectors. As more electronics were introduced on board the vehicle, this forced a downsizing of connectors, lower contact forces, and the introduction of precious metal plating. The future will bring the information network with the convergence of the automobile and the electronics industries driven by telecommunications, consumer electronics and safety systems.

The range of connectors used in passenger vehicles is from a low of 80 to a high of 395 connectors per vehicle. The 1998 Cadillac Seville contains 395 connectors and more than 2,400 terminals. Typical connectors include: in-line connections for connecting different wiring harnesses, body harness, engine harness, door harness, instrument panel harness, header connections for the interface from electronic modules and circuit boards and device connections for direct connection to sensors, switches and motors.

These connection types come in electronic versions with shielding and filtering, as well as low, medium and high-power connections. Within all the various harnesses there are also a number of specialty connectors such as: doors-off connections, used to connect all the functions of the door to the main body wiring during vehicle build— splicing connections to centralize splices —pass-through connections to allow harness junctions between sections of the vehicle. Other specialty connectors include connectors for blind mating, connectors used during the modular build of a vehicle, flexible printed circuit connectors and high current connectors (for alternators, starters, electric centers and heated windshields, as well as electric vehicles).

Delphi Packard is on the leading edge of advanced electrical/electronics system architecture development. The new vehicles will contain significantly less wire, therefore less circuitry to be connected. Delphi's new advanced architecture uses about 20% fewer connectors and a high degree of multiplexing reducing the number of terminations by about 50%. A high majority of these connectors are a type of IDC design, which is now being used in the automotive industry. Smart connectors within the vehicle are increasingly being utilized and it is projected that smart connectors will eventually account for 40-50% of the connectors in the vehicle.

Merrie Lee Soules also disclosed information on smart highways, vehicles equipped with digital and video displays, vision and radar systems, and laser sensors,- network vehicles with advanced mobile communications, entertainment and computer desktop functions. Also disclosed was data related to collision avoidance, occupant protection, theft prevention, and detection, navigation, toll accounting, personal communications, web access, and entertainment functions (VCRs, TV, radio and interactive games.) Also disclosed was visibility on new connectors within the vehicle.



Connecting With Mexico

Steven L. Bradford, partner, Carlsmith Ball, a law firm specializing in Mexico-related manufacturing, servicing and distribution ventures in Mexico, discussed the topic of connecting successfully with Mexico; an economic and legal road map. Carlsmith Ball established the first licensed branch of a U.S. law firm in Mexico and the first U.S.-Mexico law practice with Mexican partners.

Mexico now has surpassed Japan as the United States' second-largest trading partner, with annual U.S. exports to Mexico standing at $70 billion and annual imports from Mexico at $85 billion. Mexico is the third-largest Latin American country and the 14th-largest in the world, sharing a border of nearly 2,000 miles with the United States.

Mexico has been a free market economy for 12 years. The country joined GATT in 1986 and OECD in 1994. NAFTA passed in the United States and Canada in 1993 and with 80% of all manufactured goods duty-free as of January of 1998. Electronics activity including telecom, computers and other electronic equipment represent the highest proportionate U.S.-Mexico trade segment, constituting 18% of all trade. A computer and telecom revolution is under way in Mexico.

The NAFTA Rules of Origin for duty-free tariff treatment follow two rules. The first is the North American Tariff Shift Rule which allows some products made from non-North American parts to be deemed "North American" and eligible for duty-free entry into Mexico. The second is the North American Regional Value Content Rule which requires 60% when transaction value method is used or 50% when the net cost method is used.

NAFTA is resulting in the demise of the maquiladora as maquiladoras are losing their special status and the focus is shifting to the creation of fully integrated North American manufacturing facilities in every region of Mexico.



Motorola Wireless Today and the Future

John Powers, senior director of the Motorola Cellular Infrastructure Group, discussed PCS and cellular standards in various regions of the world (CDMA, DCS-1900, IS-136, GSM) as well as the proposed air interfaces for PCS in his presentation.

CDMA (IS-95 based) is supported by Motorola, Qualcomm, AT&T, Sony, and Nokia. DCS-1900 (GSM based) is supported by Motorola, Ericsson, Siemens, NTI, Nokia, and Alcatel. IS-136 based is supported by Ericsson, AT&T and Hughes. In Japan, the new CDM network is a dual mode JTACS/CDMA.

Digital trends were explained for both GMS and CDMA. Likewise, details on Motorola's worldwide WiLL System were provided, with increasing acceptance in the 1990s, rising from 220,000 subscribers in 1995 to 570,000 in 1996 and 840,000 in 1997. Also emphasized was Motorola's SC 601, billed as the world's first CDMA MicroCell product.

The statistics on MOU (Minutes of Use) were provided—5.1 trillion MOU in 1996 of which wireless was 3% or 177 billion with the balance wireline, projected to reach eight trillion by the year 2001, with the wireless portion increasing to 8.2% or 650 billion MOUs.

Motorola predicts a new paradigm shift, driven by the Internet, which will revolutionize the telecommunications industry. Further, Motorola predicts the seamless convergence of wireless, wireline and voice over the Internet. This convergence would lead to a new, open network paradigm, packet and IP based, with increased focus on integration. Open interfaces of network elements will create new potential. Motorola plans to become a leader in the transition from circuit-switched to packet-switched IP-based network for voice, data and multimedia.



Empowering the Internet Generation

The Internet is becoming the primary platform for the essential business activities of computing, communications an commerce," according to Communications Week in a June, 1997, article. Expanding on this idea was Bill Bender, strategic commodity manager for Cisco Systems, who discussed interconnect trends in networking.

Cisco's purpose, Bender emphasized, is to "shape the future of global networking by creating unprecedented opportunities and value for our customers, employees, investors and partners." The company's mission is to be the supplier of choice by leading all competitors in customer satisfaction, product leadership, market share and profitability.

Bender pointed out that, in yearly polls conducted during the 1990s, Cisco Systems would be the top choice to aid businesses in building a network from scratch. For one thing, he noted, the company has almost three times the capitalization, at $98 billion, as its major competitors combined. The importance of the Internet in commerce, he noted, is its popularity from user-driven services. "The Internet is the most dynamic, heterogeneous, evolving network on the planet, and new applications constantly appear," Bender stated.

Capital spending on networking has skyrocketed in the United States, which claims a high-tech spending percentage of 42% compared to Japan's 22%. In 1998 alone, nearly all businesses have reported spending considerably more on Internet technology than in past years

"The Internet revolution will change everything—the way we work, learn, live and play," Bender predicted, "and Cisco is the Internet expert."



Changing Applications

The effect of changing applications and their impact on connectors and terminals was discussed by Masao Yoshimura, president of JST Manufacturing Company of Japan.

In the audio-visual field, applications for television include digital broadcast, wide screen and flat screen, which require increased board-to-board demands, high pin counts and high speed in the connectors involved.

Yoshimura's company has developed the first-ever 0.4mm pitch, torsion resistant connector. This connector was developed to meet the increasing demand for more compact connectors used in products requiring miniaturization such as compact video cameras.

The plug housing is constructed in two separate parts, allowing the connector to withstand greater torsional strain than similar connectors without any damage to the solder joints. The double I type reinforcing solder tabs are used in this connector, giving it a much higher peel strength.

Due to JST's commitment to the miniaturization of electronic components, a 1.0mm pitch double-row crimp type connector was developed, along with a single-row SH, SR connector. This crimp type connector is effective for small lot production.

"Because of increasing needs for high-density connectors in cameras, mobile phones (PHS) and other electric devices," Yoshimura stated, "we are developing the 0.3mm pitch FPC connector to meet this demand for miniaturization. These connectors find application with VCR cameras, mobile phones, pagers, notebook computers and other small-size equipment.

An even tinier connector is JST's new SH 1.0mm pitch crimp style connector, which mates with the SR connector header. This device is effective for small lot production, whereas the ID style connector is effective for large lot production.

The company's SR connector is the world's only 1.0mm pitch ID connector, representing the ultimate reduction in pitch size. Since no further reduction is possible, there is less constraint on the designing engineer. Flexible discrete wire is used, making the connector easier to assemble and produce with more freedom in the component layout.



Flash Memory Card Applications

Multiple form factors in flash memory card applications can be expected to coexist since each solution brings its own strengths and weaknesses, reported Douglas N. Wong, applications engineer for Toshiba America Electronic Components.

Wong detailed the ideas behind small form factor cards, noting that the space for portable consumer products is limited and standard PC cards are too large. "Consumer products are very price sensitive," he said. "Standard PC cards have been a significant fraction of the cost of the end product."

Toshiba's new CompactFlash, Wong noted, boasts indirect (ATA) interface, a 50-pin socket connector, built-in controller and no intrinsic memory limit due to indirect interface. The company's Memory Stick features include indirect interface, 10-contact connector, serial interface and a built-in controller.

Other flash memory products offered by Toshiba include the Miniature Card, the MultiMedia Card, the Small PC Card and the SmartMedia card. The latter has indirect interface, a 22-pin connector, no controller and no intrinsic memory addressing limit. It has the smallest and thinnest form factor of any flash memory card on the market.

"There will be continued segmentation, or fragmentation, of the flash memory card market," Wong predicted. "Unlike PC cards, no dominant de facto standard has emerged for small form factor cards." He said the unit volume of small cards is expected to be almost half the market by 2001.



Korean Automotive Market

The state of Korea's automotive market was discussed by Chang-Won Lee, president and founder of Korea Electric Terminal (KET) and Sun Kwan Kim, company manager. The topic was the Korean industry and Asian automotive connector trends.

Lee forecast a virtual doubling of the current automotive market in Korea by 2002. This would, in effect, bring the industry back to 1997 levels, since the market suffered a severe dropoff in 1998 because of the Asian currency crisis.

There are five major automobile manufacturers currently operating in Korea. They include Daewoo, Asia, Hyundai, Samsung and Ssang Yong.

While the country's economic growth rate has dipped in recent years, the population has remained constant and the number of passenger vehicles climbed from 6.89 million in 1996 to 7.58 million in 1997. Commercial vehicles rose at a more modest pace, from 2.6 million to 2.8 million.

Automotive connectors make up 18% of Korea's connector market, Lee said, making that type the second-largest connector utilized in the country. Printed circuit connectors command the market at 39%.