Atotech’s Uwe Hauf’s View of the Global Electronics Manufacturing Market
Uwe Hauf, VP of electronics for Atotech and I sat down at CPCA 2015 for an illuminating discussion of the global market—what’s happening now, what is going to happen tomorrow, and a few things that won’t happen for at least ten years, according to Hauf.
Barry Matties: Uwe, what do you do as VP at Atotech?
Uwe Hauf: Sometimes I ask this question myself! As VP of electronics at Atotech I am responsible for the electronics and semiconductor part of our business, including sales and marketing, technology, troubleshooting and the development of new products by our R&D departments.
Matties: How long have you been with Atotech, and what are some of the changes you’ve seen?
Hauf: I've been with Atotech for more than 28 years, and I’ve seen many changes, for sure. Our strategy has constantly adapted to market needs. For the past ten years we have mainly focused on the high-end application of our business—the high tech. We are offering a systems approach, consisting of special chemistry, equipment, and the know-how in between. We have a very sustainable approach, which we are strictly pursuing. Another central part is to "be local." We have local organizations everywhere, which are self-sufficient, but networked on a worldwide basis.
In China, where we have been active for about 35 years, we have a big advantage. In the beginning, it was at a very low level, but we already had the management in place that laid the groundwork for our international engagement. It was work to get a foothold in China, but it wasn't new to us. We knew how to handle it and we were wise enough to install local management. Today we still have only one or two expats on an annual basis here in China or anywhere in Asia. This is self-sufficiency.
Matties: What do you see the market doing, and do you see it changing much in terms of technology or segments?
Hauf: In terms of technology, there is no big revolution in sight, but constantly diminishing feature sizes. In the meantime, all segments, including semiconductors, have really reached the limits of existing, traditional, manufacturing procedures.
We have a kind of paralyzed situation at the moment, especially in IC substrates, where our customers have to decide soon which route to go in terms of new production methods. They are all struggling because each decision means lots of investment and a lot of new manufacturing infrastructure.
We're talking about the high-end here—Taiwan, Korea and Japan. More and more IC substrates are going to China. They are all pushing in the same direction: cost, cost, cost. China has one big problem in the meantime, and that is, it's too expensive.
Matties: I see a lot of automation coming into China.
Hauf: Yes. Look at the halls of the trade shows where you have automation. They are full, while in the traditional areas, like in PCB production or the suppliers industry, it's kind of a medium-sized booking on a day-to-day basis. The automation sectors are full. This is the big challenge that we see. We are a systems supplier and we realize that the specifications do not only lean in the direction of technology, thinner boards, and smaller feature sizes, etc., but also toward full automation. The operators are only there to get the magazines full, but don't touch anything.
In America, you cannot talk about a revival yet. The big customer base in America is no longer there. You have two, at maximum three, large-sized plants in America, but there are new technologies arising. For example, in the sector of touch screens, there are new manufacturing methods.
A lot is going on in terms of development with the big OEMs, where they are now seeking really close cooperation with chemical suppliers or systems’ suppliers like us.
Matties: What about the printed electronics market?
Hauf: The world is waiting for super-conductive ink.
Matties: It's close though, don't you think?
Hauf: It's probably close in terms of technology, but not in terms of being competitive on a price level. We're talking about nano-particle inks, which are still damned expensive. They are not real competition yet, in terms of conductivity or process performance.
Matties: It may be very expensive, but at some point the transition happens, don't you think? When you look at the expense of building one panel at the circuit board shop, it has to be as expensive as printing a panel.
Hauf: Printed electronics for sure has a future, and new technologies will come. Everybody is talking about 3D printing. Whatever can be printed will be printed. We’ll have the combination of printing of plastics in combination with metals and metal inks. But in my opinion, no, I think printed electronics is at least a decade away. I will probably be retired when this kicks in.
Matties: What about wearable electronics? That's a huge market as well.
Hauf: From the product side and number-wise it is a huge market, but if you look at our industry, we are living on surface area. These are not large capacities that will be needed—definitely high-end, high-tech, but small features, and small printed circuit boards with more intelligent chips on them. Wearable electronics will boost it, but will not be the big booster for our industry, so to speak.
Matties: What is driving our industry?
Hauf: I think we are struggling a little bit with new, revolutionary products. Everybody is talking about the Internet of Things, or networking, etc. What we see is a big boost in the automotive industry. We have a lot of requests in the direction of high-frequency applications, like the new radar systems.
We have very promising growth rates for the automotive industry in terms of the number of cars. This is boosting or keeping us alive, as is the networking, meaning that the consumer will be forced to replace his wearable devices on a more frequent basis.
We are now at the point where we are heading for two billion smartphones being built every year; that is an unbelievable number. So more than one out of four on this planet decided last year to buy a phone, and the rest either said, "I don't want it," or "I cannot afford it." This is an ongoing story. If you look at the capacities, we're heading for replacement on an annual basis, which will require new business models for the smartphone industry.
Matties: When you look at regions, what do you see in India?
Hauf: It will take, so to speak, at least two reincarnations for India to take off. India is a huge market but is still lacking infrastructure, as it has the last few decades. We are not only talking about energy, but also waste treatment, sewage systems, and administration. These are the biggest hurdles that discourage foreign companies from investing there.
Matties: What do you see happening in China? It seems like they plateau and then the government steps in. At some point there's going to be a shift, or a bubble will pop.
Hauf: I don't think that we are talking about a bubble, but somehow China is peaking. Like you said, we saw growth rates of high double-digits during the last decade. Now we're talking about 4–5% growth in our industry, while China is now peaking at about 7% GDP growth, which they need as a minimum to sustain their economy. This would be heaven in Europe, but this is the bottom line here in China. They need further growth, and growth way above 7% to keep pursuing like that. If you look at the investment behavior of the PCB industry, they'd rather concentrate on countries outside of China.
We have seen investments in Malaysia. A lot of activities are going on in Thailand, especially from Japanese companies. Vietnam is a little bit far off at the moment, but companies are evaluating primarily outside of China. Of course, there will be still investments and expansion in China, but not with the passion of the past.
Matties: And what do you think is happening in Japan?
Hauf: Actually, our company is quite successful in Japan. We have a growth rate of 10–15%, or nearly 10–15% are new customers. The Japanese electronics industry is investing outside of Japan. Japan’s economy is not down, but it is more than consolidated. I’d say it is negatively peaking.
Matties: They have a long way to come back, so maybe that will create a lot of opportunity?
Hauf: I think Japan is still a rich country, no doubt about that, but to come out of this hole will take a long, long time. We do not expect further substantial growth within Japan in the near future.
Matties: When you look at Europe at this point, what do you see there?
Hauf: During the last five years Europe developed much better than expected in the electronics industry. And there is a lot of development going on, of course, with Germany at the heart and kind of being the locomotive. We can sustain our business model and mass production will not shift back.
Matties: It's really the automotive industry and Germany that's driving that, would you agree?
Hauf: Yes and there are a lot of qualifications going on for the automotive industry—local companies that are producing in Asia, or companies that are supporting all these developments. Plus, there is the tendency of the European automotive industry to keep a European mixture alive—similar to the Americas. The mass production will come from outside, but the development and the technology is kept in Europe. This is our business model and has been, especially in Germany, for the last 50 years.
Matties: That is interesting, because I see German manufacturers like Schmoll and others that bring their products here. They build in Germany and ship it here, rather than building in China, yet they're still successful in China.
Hauf: It is like that. Of course, all those companies had different plans when they started relocating to China, building up manufacturing and assembly in China, and relying on a supply chain that so far never existed here.
We have had the same experience today, where I think China and the Chinese infrastructure have reached a point where we can revive these plans. A lot of companies are now reviving their original strategies, with serious plans to manufacture here and not just assemble.
So far, the exercise of building in Germany or in Europe and shipping it has been more or less at the same cost as to go through the entire worldwide supply chain organized by you.
There's a huge price discussion of course, now a little bit drawn back by the help of the dollar. If we at Atotech are accounting in dollars, we get a big hit, sales- and margin-wise, but also a positive effect in terms of cost, if we account like that. This keeps the entire thing running.
Plus, like I've talked about, there is an amazing rising cost in China. In my opinion this helps the world economy, and it helps the Chinese people to get on a different level, slowly but surely. The overall number of people in China—we're not talking about the coast belt and some islands in the middle—are still waiting to be on that socio-economic level.
Matties: But for the people that are in that belt, the transformation has been like a rocket ship.
Hauf: Look, if you want to hire a good engineer in the belt right now, you have to pay the same salary that you pay in Europe. Look at operators—here [in China] you have to calculate a monthly overall cost of probably $900. It would be the same in many countries in Eastern Europe. There you just do not have the necessary infrastructure for our industry, and the number of specifically educated people.
Matties: With the labor cost approaching the same or on par, do you think the manufacturing of large volumes will still stay in China, or do you see it coming back to Europe?
Hauf: I see it staying in China. I do not see it coming back to Europe.
Matties: But as far as Germany or even America goes, what was the advantage of continuing to manufacture mass quantities here in China?
Hauf: If you are talking about the typical Chinese worker, there is still a huge gap where you have to compare labor cost of $900 per month with what you would pay in the U.S. for the same amount of labor, which is around $3,500.
Matties: This brings back the automation equation, because that's the great equalizer. If I'm setting up a factory or if I have an existing factory, I can just start replacing people with automation.
Hauf: If you have a product that can be manufactured with a lot of automation, then you are absolutely right. As history has shown, once an industry moves or shifts it is hard to bring it back. For example, take the optics industry, once leading in Germany and leading in Europe; it's fully automated nowadays, but in Asia. Once a technology shifts to a different region, the entire infrastructure shifts there, leaving countries such as in Europe or elsewhere in the situation of having to build up this infrastructure again. Once it moves, it's gone.
Matties: That's why I started looking at things like printed electronics, because that's new and new infrastructure has to be formed for it. It seems like if we're coming in with a new model, then that has cleared the way for something new to come into America or Europe.
Hauf: I agree. These are promising technologies and these are technologies that have a future, but this future begins, believe me, in 10 years. Not right now.
Matties: But 10 years really does fly by. We've been at this for how many years? (Laughs)
Hauf: Yeah, but we also talk at the same time about energy and energy efficiency, where the Western world is leading. We're not only talking about communication. Look at the automotive industry: fully automated. I doubt that manufacturing a car in China is much cheaper than in Europe. It's just the location. It's the delivery time and to be close to the market. You pressure your suppliers, and do it like you are just as close to the market, and this is it. Once it moves, it’s gone. The automotive industry is one of the industries that really kept an eye on staying in Europe, which is still a huge market. The same applies to America. There are no visible tendencies to manufacture them in Asia and then re-import them.
You also have the Japanese model, where you export cars and the Japanese consumer that relies on high quality is re-importing this car because they are built to a better standard (laughs). This is the ridiculous part of the world's economy.
Matties: Uwe, thank you very much for your time.
Hauf: Thank you. It is always nice speaking with you.