PCB makers merge as OEMs withdraw

Electronic News, Feb 23, 1998 by Bernard Levine

New York--Two leading independent printed circuit board makers, Hadco and Viasystems, last week made major acquisition forays to bolster their geographic reach and technical prowess. Each has been mounting large-scale offensives in recent months to hike their capabilities. In their latest moves, Hadco has agreed to buy Continental Circuits of Phoenix, while Viasystems acquired Mommers Print Service, B.V. of the Netherlands.

Giant computer makers and other OEMs used to be at the forefront of the printed circuit board industry, but with many large system houses selling off board operations in recent years to independent PCB houses and contract manufacturers, the role of spearheading sales growth and technology initiatives has often been left to firms such as Hadco and Viasystems. Andy Lietz and James N. Mills, CEOs of Hadco and Viasystems respectively, have not shied away from the vacuum left by the large OEM withdrawals.

Salem, N.H.-headquartered Hadco, already the largest publicly owned interconnect circuit producer in North America, will have sales after the Continental deal is completed that run in excess of $900 million. Hadco acquired contract manufacturer Zycon early last year and last week agreed to buy board maker Continental Circuits for $23.90 per share, or approximately $185 million in cash, plus assumption of approximately $33 million in debt. Through the deal, Mr. Lietz will add key manufacturing assets in the southwestern U.S., as well as crucial technology and personnel.

His firm "has a clear growth strategy," Mr. Lietz told a conference call last week. "This fits with it. We will enjoy 11 percent of the North American market, and a greater percentage of the high technology market."

Continental Circuits has been a leader in developing plasma microvia techniques. It also recently (EN, Feb. 16) purchased PCA Design Inc., a privately-held Saratoga, Calif. printed circuit board and interconnect technology engineering and design firm, also strong in microvias. Continental also recently acquired flexible printed circuit board maker Dynaflex.

Microvias are holes smaller than 8 mils in diameter. Such holes will be needed in future high density boards to attach ball grid arrays, chip-scale packages and flip-chipped bare die. Microvias have been a major topic of scrutiny at recent packaging industry technical forums, and are expected to command the spotlight again at next week's Nepcon West in Anaheim, Calif.

Frederick G. McNamee, III, Continental's chairman/president/CEO, has pledged to remain with Hadco, and is expected to play a key role in future R&D efforts. Other key Continental management officials are also expected to remain with the operation, with no cutbacks anticipated. Mr. McNamee joined Continental several years ago from IBM Austin, where he was heavily involved in microvia development. Hadco has previously licensed microvia technology from both IBM and Hewlett-Packard.

The importance of independent board houses to such crucial future research was emphasized by Mr. McNamee in the conference call. "A few years ago, most OEMs were doing R&D. Now, most are out. We must do R&D," he said.

According to Harvey Miller, president of research house Kirk-Miller Associates, Palo Alto, Calif., "microvias are driving the industry, but the transition is expensive and difficult. Microvias are important to accomodate ball grid arrays and chip-scale packages and other array packaging such as flip chip. Combined with blind microvias, it allows you to put holes down in the surface to lower layers, enabling use of smaller packages. Microvias are tiny holes on top of circuit boards allowing components to be connected to the underlying routing layer. It is tied to the move to array packaging that replaces wirebonding." He noted chemical, material and other manufacturers are all currently engaged in key research.

Mr. Miller added that Continental "leads in plasma technology," one of a number of enabling processes under development to produce microvias. While Hadco has also been doing microvia work, "they bolstered their microvia technology through this deal. I think that was the key." Asked what he thought of the price tag, Mr. Miller said Hadco "wanted it, they had to pay for it."

In addition to Hadco and Viasystems, other key players in the high-density interconnect market include Merix, Multek, Details and Praegitzer, he said.

Hadco is mounting a tender offer for Continental, and Hadco VP/CFO Timothy Losik said closing is expected by the middle of March. A one time charge tied to the deal is expected.

Merrill Lynch's Jerry Labowitz maintained his intermediate-term neutral rating on Hadco "because of concerns about slower worldwide growth for electronic equipment," but "we are emphasizing our long-term Buy rating. Hadco is one of the leading circuit board fabricators in the world and consolidators in the industry. It has a premier and diversified customer list, and a focused manufacturing strategy that is unparalleled in the industry."