China or bust? Manufacturing moves to the Far East have semiconductor industry nervous - News

Electronic News, Oct 7, 2002 by Bernard Levine

North American component makers and distributors may never be the same again. The massive shift of electronic system production and assembly to low-cost locales in the Asia/Pacific region is forcing them to feverishly reassess their own site location rosters.

Many are reportedly eyeing new Far East expansions or partnership deals to chase after their primarily China-bound OEMs and contract-manufacturing customers. Distributor Jaco Electronics and capacitor maker Kemet Corp. are two of the companies considering such moves. "It is time for reassessing how you go to market and whether it pays to go the way you have been," said Ben Schwartz, VP of strategic marketing at Hauppauge, N.Y.-based Jaco, which is considering Asian alliance deals.

Setting up capacitor manufacturing in Asia "is something we have studied a lot since the first of the year, but no decision has been made yet," said a spokesman for Kemet. The Greenville, S.C.-based company has focused its manufacturing in the United States and Mexico.

A lot of soul-searching is going on throughout the industry. While the largest North American semiconductor, passive component makers and distributors have long prided themselves on being global suppliers, many wonder if they are really global enough. Meanwhile, smaller companies concentrated only in North America must decide if that strategy remains viable when one of the biggest opportunities for growth is expected to be thousands of miles away.

Many top North American semiconductor manufacturers that already have major production operations in Asia are weighing expansions. While several North American passive component houses already have manufacturing plants in Asia, others just have sales and marketing offices there.

But that might change.

"We are talking to customers who want us to be local with manufacturing in Asia," the Kemet spokesman said. Kemet has sales and logistics operations in Asia now, and the capacitor maker said it has explained the cost benefits and other advantages of focusing manufacturing elsewhere. However, its customers are not convinced. "We can service customers anywhere, and 23 percent of our revenue comes from Asia today, but the pace of conversations has picked up considerably with all our key customers who are building facilities in China," the spokesman said. "We will service our customers wherever they are, and build the infrastructure, whatever it takes."

Just how much is at stake? "Electronics in North America is still larger than anyplace else so it may not be so much that North American sales will be smaller, but Asia will grow faster," he said.

Jaco has had limited offshore presence, but the distributor now is looking for strategic alliances in Asia because more component purchases are being made in places such as China, Taiwan, Singapore, Thailand and Malaysia.

But in such locations, distributors might face increased rivalry from their own suppliers, warned analyst George Perris of Sierra Marketing Group. "Some component suppliers are looking at doing business more with contractors directly in Asia. The big issue of recent months has been how do we control inventory. Some component makers believe that it maybe best to deal with contractors directly."