2
The Printed Circuit Technology Industry

Very few generalizations can be made about the global printed circuit board (PrCB) industry, other than to say that it is diverse. While many concerns are shared by the many manufacturers, suppliers, technologists, and traders that make up the printed circuit industry, many of these same parties also have conflicting beliefs on whether current trends are good or bad.

A parallel observation is that very few generalizations can be made about the markets for printed circuit technology other than to say that applications are ubiquitous and growing. A brief look around any environment will reveal dozens to hundreds of printed circuit boards in items ranging from garden tools to cellular telephones to high-end supercomputers. As varied as these applications are, a number of trends in the technology are expected to influence their use.

INDUSTRY OVERVIEW

The global industry for the design and production of printed circuit technology is constantly evolving. The following is intended as a snapshot view of the industry in the United States. Table 2-1 shows the breakdown as of 2003 in the various types of boards produced and offers a broad view of U.S. and global production.

Size of Market, Capacity, and Companies

In 2003, the dollar value of the U.S. PrCB market was approximately $4.4 billion, down more than $6 billion from 2000 when the dollar value of the market was approximately $10.7 billion. In 2000, the government and military segment of the market was 2 percent, or more than $200 million. In 2003, this segment had risen to 12 percent of the total and accounted for more than $500 million in sales.1

While it is difficult to determine capacity in light of the continuous cycle of PrCB manufacturing plant closures that is currently going on, estimates of capacity based on returning to round-the-clock operation of all U.S. facilities are suspect. No U.S. PrCB manufacturing location is reported to be running at 100 percent capacity—a trend that is expected to be long term owing to the capital expense, training, and retooling time needed for facilities to return to round-the-clock operations after 4 to 5 years of two-shift operation.

In 2000, 13 independent rigid-PrCB manufacturers in the United States each had sales of over $100 million annually; an additional 30 U.S. independent manufacturers each had sales of between $50 million and $100 million. These 43 companies were the backbone of the industry-wide research and development (R&D) effort in the United States and as such were willing to take risks and invest in new

1  

D. Bergman, IPC. 2004. Presentation to this committee. December 13.



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Linkages: Manufacturing Trends in Electronic Interconnection Technology 2 The Printed Circuit Technology Industry Very few generalizations can be made about the global printed circuit board (PrCB) industry, other than to say that it is diverse. While many concerns are shared by the many manufacturers, suppliers, technologists, and traders that make up the printed circuit industry, many of these same parties also have conflicting beliefs on whether current trends are good or bad. A parallel observation is that very few generalizations can be made about the markets for printed circuit technology other than to say that applications are ubiquitous and growing. A brief look around any environment will reveal dozens to hundreds of printed circuit boards in items ranging from garden tools to cellular telephones to high-end supercomputers. As varied as these applications are, a number of trends in the technology are expected to influence their use. INDUSTRY OVERVIEW The global industry for the design and production of printed circuit technology is constantly evolving. The following is intended as a snapshot view of the industry in the United States. Table 2-1 shows the breakdown as of 2003 in the various types of boards produced and offers a broad view of U.S. and global production. Size of Market, Capacity, and Companies In 2003, the dollar value of the U.S. PrCB market was approximately $4.4 billion, down more than $6 billion from 2000 when the dollar value of the market was approximately $10.7 billion. In 2000, the government and military segment of the market was 2 percent, or more than $200 million. In 2003, this segment had risen to 12 percent of the total and accounted for more than $500 million in sales.1 While it is difficult to determine capacity in light of the continuous cycle of PrCB manufacturing plant closures that is currently going on, estimates of capacity based on returning to round-the-clock operation of all U.S. facilities are suspect. No U.S. PrCB manufacturing location is reported to be running at 100 percent capacity—a trend that is expected to be long term owing to the capital expense, training, and retooling time needed for facilities to return to round-the-clock operations after 4 to 5 years of two-shift operation. In 2000, 13 independent rigid-PrCB manufacturers in the United States each had sales of over $100 million annually; an additional 30 U.S. independent manufacturers each had sales of between $50 million and $100 million. These 43 companies were the backbone of the industry-wide research and development (R&D) effort in the United States and as such were willing to take risks and invest in new 1   D. Bergman, IPC. 2004. Presentation to this committee. December 13.

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Linkages: Manufacturing Trends in Electronic Interconnection Technology TABLE 2-1 Dollar Value of Printed Circuit Board Production by Global Region in 2003 (millions of dollars) Region Paper Composite Glass Epoxy Multilayer Epoxy Multilayer Nonepoxy High Density MicroVia Integrated Circuit Substrates Rigid PrCB Subtotal Asia/Pacific 1,296 1,041 2,414 8,811 400 3,219 3,576 20,756 Europe 174 178 1,081 1,356 85 439 — 3,312 Middle East and Africa 2 — 62 54 10 5 5 138 North America 30 40 850 3,191 524 155 57 4,847 Other Americas 23 3 56 24 — 2 — 108 World Total 1,524 1,262 4,463 13,436 1,019 3,820 3,638 29,161   Flex Circuits Rigid-Flex Circuits Flex Circuits Subtotal Asia/Pacific 3,888 555 4,443 Europe 121 123 244 Middle East and Africa 5 10 15 North America 500 121 621 Other Americas 1 — 1 World Total 4,515 809 5,324   Grand Total PrCBs Asia/Pacific 25,199 Europe 3,555 Middle East and Africa 153 North America 5,468 Other Americas 109 World Total 34,484   SOURCE: IPC, the Association Connecting Electronics Industries. processes or equipment to improve the quality and technology of their products.2 In total, 678 independent rigid-PrCB manufacturing companies operated in the United States in 2000. Table 2-2 categorizes the 678 companies according to their annual sales. In 2003, only 8 independent rigid-PrCB manufacturers were operating in the United States with sales of over $100 million each; 5 companies had sales of between $50 million and $100 million each. This 61 percent decline in large, well-funded, and independent PrCB manufacturers (those with annual sales of over $50 million) is a contributing factor in the decline of technology innovation and investment in the United States. In total, it is estimated that fewer than 500 independent rigid-PrCB manufacturers remained in the United States in 2003, down 27 percent overall from the total of 678 in 2000. While some of this decline may be due to increased productivity that can lead to internal consolidation or consolidation through acquisition, the overall numbers are decreased across the board. These data describe the exodus of PrCB manufacturing offshore during the period from 2000 to 2003. For the PrCB industry, one of the greatest concerns was the loss of the larger independent manufacturers. This segment was the most critical to the continuation of U.S. technology innovation and investment. It is unlikely that the companies that remain—most with sales under $20 million annually—will be able to make the investment required today and into the future to maintain competency in the state-of-the-art manufacturing practiced by the global leaders in Japan, Taiwan, and now rapidly emerging in China. Many industry consultants also believe that the remaining companies in the United States, 2   Most of these companies had been participating members of the Association Connecting Electronics Industries (known as IPC), an industry trade association, and the now-defunct Interconnection Technology Research Institute (ITRI).

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Linkages: Manufacturing Trends in Electronic Interconnection Technology TABLE 2-2 Number of Independent U.S. Companies Manufacturing Rigid PrCBs, 1995, 2000, and 2003 Annual Sales per Company 1995 2000 2003 Over $100 million 7 13 8 $50 million to $100 million 15 30 5 $20 million to $50 million 36 39 31 $10 million to $20 million 60 88 62 $5 million to $10 million 90 149 122 Under $5 million 460+ 359+ 265+ Total 668+ 678+ 493+ NOTE: Plus sign (+) indicates a low-end estimate. SOURCE: IPC, the Association Connecting Electronics Industries. currently about 400, will have a difficult time competing in the global marketplace and may face competition even in niche products over the next 2 to 5 years. Of the roughly 400 active independent rigid-PrCB manufacturers that existed at the start of 2005, only 18 are certified under MIL-PRF-31032. In the flex and rigid-flex segments, only 6 companies are qualified under MIL-PRF-31032. Half of these companies are under $20 million in annual sales.3 A growing sector in electronics manufacturing is in the contract manufacturing of electronics manufacturing services (EMS). EMS has become a major component of the electronics industry in the past 5 years. This migration is less true for the PrCB industry. Only one electronics manufacturing systems company, Sanmina-SCI, is vertically integrated and manufactures PrCBs. The rest of the EMS industry buys raw PrCBs from suppliers, such as Tyco or Sanmina-SCI, and then populates the boards with components, tests them, builds them into full systems, performs system-level tests, and provides logistics and repair support. So, while EMS companies are not a major manufacturer of PrCBs, they represent a significant share of PrCB company customers. The Global Nature of the Industry The PrCB industry, like the larger electronics industry, has always had a global component. Only in the past 4 years, however, has the U.S. manufacturing base faced a serious decline. The decline is continuing as the remaining larger companies close facilities and increase their investment in China and in other lower-cost manufacturing locations. In 2000, the United States was second only to Japan in production of PrCBs, and these two countries had swapped the lead position at various times in previous years, Table 2-3. Looking at the top 10 producers of PrCBs from each region gives a reasonable perspective on the entire marketplace. In 2000, Japan’s top 10 had 25 percent of global capacity, and the United States’ top 10 had 21 percent. In the previous year the United States’ top 10 led the pack, followed by Japan’s top 10 and Taiwan’s top 10, with China’s still holding the fourth position. In 2003, Japan’s top 10 continue to dominate, holding 29 percent of the global market share, with China’s top 10 leaping to second position at 17 percent of the global market share; the United States’ top 10 follow with 15 percent, and Taiwan’s top 10 lag at 13 percent market share. Along with the regional shifts in output, a fundamental regional consolidation has occurred as well. Fewer countries have a producer in the global top 10, and there are no longer any outliers to be captured 3   MIL-PRF-31032 is the “Performance Specification Printed Circuit Board/Printed Wiring Board, General Specification for FSC 5998.” This specification establishes the general performance requirements for printed circuit boards or printed wiring boards and the verification requirements for ensuring that these items meet the applicable performance requirements. The intent of this specification is to allow the printed board manufacturer the flexibility to implement best commercial practices to the maximum extent possible while still providing product that meets military performance needs. Available at http://www.dscc.dla.mil/Programs/MilSpec/listdocs.asp?BasicDoc=MIL-PRF-31032. Accessed September 2005. Note that effective December 31, 1998, MIL-PRF-31032 replaced MIL-PRF-55110 for new design applications. MIL-PRF-55110 is still in use for many legacy applications.

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Linkages: Manufacturing Trends in Electronic Interconnection Technology TABLE 2-3 Annual Sales for Top Ten Companies in Printed Circuit Industry, 2000 and 2003 Top 10 Producers, 2000 Million U.S. $ Top 10 Producers, 2003 Million U.S. $ 1 Sanmina-SCI United States 1,500 1 Nippon Mektron Japan 1,117 2 Visasystems United States 1,250 2 CMK Japan 1,049 3 CMK Japan 1,112 3 Ibiden Japan 1,027 4 Ibiden Japan 1,083 4 Hitachi Group Japan 685 5 Hitachi Group Japan 973 5 Shinko Denki Japan 636 6 Nippon Mektron Japan 905 6 Unimicron Taiwan 609 7 Compeq Taiwan 802 7 Samsung E-M Korea 545 8 Tyco United States 780 8 Compeq Taiwan 462 9 Fujitsu Japan 624 9 Nanya PCB Taiwan 453 10 Multek United States 600 10 Daeduck Group Korea 422 Total 9,629   7,005   SOURCE: IPC, the Association Connecting Electronics Industries. as “rest of the world.” The result is that all of the top 10 manufacturers are from a key location in Asia, the United States, or Germany. According to the PCI Market Research Service report of March 2005, “Irresistibly low costs and access to huge markets have created a Chinese magnet for PrCB producers, worldwide. The competitive fallout is evident in the continuing closures of facilities in North America and Europe. And recent announcements indicate that the process will continue in 2005. As a result, China will overtake Japan as the number-one board producer in 2006. That year, China is forecast to produce $10.6 Billion worth of PrCBs, accounting for 25 percent of the world total.”4 One difficulty in reconciling this information is that the top three U.S. producers of PrCBs all have significant manufacturing bases outside the United States even though their annual sales are attributed to the United States. Of the top 25 PrCB manufacturers worldwide in 2003, only 4 were U.S. companies—Viasystems Group (11 plants), Sanmina-SCI (13 plants), Multek (14 plants), and Tyco PRCB (16 plants). Of these 4 companies, only one (Tyco PRCB) did not have a significant component of the production in offshore manufacturing. Of the top 10 PrCB manufacturers headquartered in the United States, half place the majority of their production in Asia.5 In 2000, nearly 80,000 people were employed in the North American PrCB industry. These jobs ranged from employment of hourly production workers to that of salaried engineers and included management, information technology, and professional workers. At the beginning of 2004, the total dropped to just over 41,000, nearly a 50 percent reduction in the labor force. These cuts were made across all job descriptions as plants closed, either owing to bankruptcy or because factories were relocated to Asia. No major technologies change was introduced during this period to increase productivity, so the decrease can be almost wholly attributed to production moved from U.S. to overseas locations.6 The number of people employed in North America in the PrCB industry continues to decline as new closures are announced weekly. In April 2005, Noble Industries, a manufacturer in Hibbing, Minnesota, closed its last plant—a 34,000-square-foot facility—having closed a Texas facility in 2001 and an Iowa plant in 2003.7 Announcing another losing quarter, Sanmina-SCI stated that in 2004, “in response to market needs, we transferred manufacturing capacity from North America and Western Europe to lower- 4   E. Henderson. 2005. PCI Market Research Service Report. Los Altos, Calif.: Henderson Ventures. 5   IPC, the Association Connecting Electronics Industries. 6   IPC, the Association Connecting Electronics Industries. 7   K. Grinsteinner. 2005. 60 Hibbing workers lose jobs; Noble Industries closing down. Mesabi Daily News, April 27.

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Linkages: Manufacturing Trends in Electronic Interconnection Technology cost regions in Asia, Eastern Europe and Latin America.”8 Sanmina-SCI purchased Pentex Schweitzer in 2004, and in doing so, bought PrCB manufacturing capacity with one plant in Singapore and two facilities in China.9 In early May 2005, the DDi Corporation announced the closure of its mass lamination facility in Phoenix, Arizona.10 Few bright spots are apparent in this picture. Older workers from the PrCB labor force in the United States may be forced to take either early retirement benefits or significant reductions in pay while they try to shift career paths. Few U.S.-based jobs are advertised in PrCB research, development, or product engineering, and the majority of the current approximately 30,000 workers will reach retirement in the 2015 to 2020 time frame. Current industry trends will make it difficult for corporate leadership to attract a future talent pool to continue to serve the industry’s requirements. The PrCB industry is the apparent victim of a fundamental transformation of the global electronics industry, which is characterized by very rapid product cycles and extremely demanding cost pressures and is led by very high volume throughput applications. For several reasons, much of the production capability for these downstream electronic products has increasingly moved offshore and increasingly to Asia.11 This inexorable trend has had major ripple effects in upstream supply, with PrCBs being only one of the affected industries. For the U.S. PrCB industry, the combination of low operating margins and low sales volume produces little or no investment in research, technology, or innovation. For the Department of Defense (DoD) and for national security, the impact that the changes in the PrCB industry, as described above, have had on U.S. policy interests falls into two key categories. First, with greater emphasis on highly integrated electronic systems in which many functionalities are combined in a single device, advanced packaging and interconnection technologies become increasingly important, whether for consumer applications, industrial applications, or defense applications. Second, for highly specialized needs for defense, the access to both new technology and trusted production sources is endangered. Under current conditions, it is unlikely that technical capabilities, including a skilled workforce, can be sustained. High-Performance-Board Production High-performance boards are those made primarily for military and medical applications. For the Department of Defense, qualification of suppliers for current production is done using MIL-PRF-31032.12 High-performance boards require different and more-sophisticated equipment to be used in the manufacturing process. These equipment sets include but are not limited to laser drills, autoclave lamination presses, laser direct-imaging machines, laser trimmers, and specialized plating lines. When purchased new, these equipment sets have a high capital cost per unit; for example, the total cost for the equipment set just outlined is $4.4 million; it would provide only a very limited production output. In aggregate, a company with $10 million worth of process equipment would need to make an investment of more than $3 million per year to maintain state-of-the-art competency of the equipment, or about a 30 percent capital investment per year. In most cases in which investments have been delayed because of the downturn during the past 3 years and longer, companies would need to make a capital investment of more than 50 percent of their total revenues to return their manufacturing capabilities to current production. As a result of the equipment intensity of this type of manufacturing, producing high-performance boards such as are required to meet government and military requirements, even in low volumes, would mandate a high capital investment by the existing U.S. manufacturing base. For independent PrCB manufacturers with sales of under $20 million annually, the possibility is very unlikely. It becomes reasonable to conclude that the 400 or so U.S. companies cannot hope to remain competitive in this high- 8   Executive Letter to Shareholders in the Sanmina-SCI 2004 Annual Report. 9   Press Release. 2004. Sanmina-SCI to Acquire Pentex-Schweizer Circuits Limited. Available at http://www.sanmina.com/pressroom/2004/062804.pdf. Accessed September 2005. 10   Form 10-Q for DDi Corporation, filed August 10, 2005. Available at http://biz.yahoo.com/e/050809/ddic10-q.html. Accessed September 2005. 11   K. Pildal. 2004. Asia’s PCB Manufacturing: Dramatic Growth … and Decline. Circuitree, February. Available at http://www.circuitree.com. Accessed October 2005. 12   For systems specified prior to December 1998, the preferred military specification is MIL-PRF-55110.

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Linkages: Manufacturing Trends in Electronic Interconnection Technology technology area without a significant infusion of capital. It is probable that without outside support, these small PrCB suppliers will not continue to be able to meet the requirements of U.S.-manufactured PrCBs for government and military applications. Approximately 5 percent of PrCB industry manufacturers are military-qualified under the military specification currently in force. It is important to realize, however, that military boards can be manufactured under previous defense specifications or by nonmilitary certified processes. For example, some shops may make boards to IPC-6012 class 3, using the Single Process Initiatives acquisition excellence program. Boards specified prior to 1998 are under a number of older specifications. Table 2-4 shows the companies currently qualified to supply military boards under MIL-PRF-31032. Note that there are more qualified suppliers on the left side of the table, for less complex rigid boards; and fewer in the right-hand columns, for more complex flex boards. SUPPLIERS TO THE PrCB INDUSTRY The manufacturing and assembly of printed circuit boards make up only one part of the PrCB industry. The suppliers to the manufacturers are also critical, spanning a wide cross section of industries. Some of these are specific to the PrCB industry, but most also supply other, related manufacturers. The basic building blocks of the PrCB come from the glass suppliers, organic resin suppliers, and metals suppliers. Several large multinational companies, including Owens Corning, Ciba Specialty Chemicals, the Shell Group, Dow Chemical Company, BASF, Grupo Mexico, and the Engelhard Corporation, are all in business for the long term and supply many industries in addition to the PrCB industry. There is little likelihood that these companies will cease to make glass fiber or epoxy resin or stop mining copper and refining gold. The next tier of suppliers is the specialty manufacturers, a potentially weaker link in the supply chain. These companies include Gould Electronics, Inc.; Park Electrochemical Corp.; Polyclad Laminates, Inc.; Isola Group; Taiyo America, Inc.; Rohm and Haas Company; McDermid Corporations; Cookson Electronics; E. I. du Pont de Nemours and Company; Electrochemicals, Inc.; Olec Corp.; Chemcut Corp.; and Technic, Inc. They are responsible for taking the basic raw materials and manufacturing a value-added specialty product that will be used by PrCB manufacturers to build printed circuit boards. Many of the suppliers mentioned above are U.S.-based companies with global operations. They supply materials such as laminate, plating chemicals, imaging films, solder resists, and the equipment to use these materials. Like the rest of the electronics industry, these companies have faced a dramatic decline in U.S. production and revenue from 2000 to 2005. The supplier companies to PrCB manufacturing are particularly affected by these trends for the following reasons: The product mix in the United States has shifted heavily to high-performance boards. As suppliers of materials, this supply chain derives its revenue from the square feet of board produced rather than from the value of the finished PrCB. From the suppliers’ point of view, the loss of capacity in the United States is significantly higher than simply the loss in the dollar value of finished board products. As a result of this shift, the residual U.S.-based workforce at these suppliers has been drastically reduced, by over 75 percent in some cases. Because many of these companies are small businesses, many in this sector have failed or merged with others to attempt to stay financially solvent. Mergers and acquisitions of small businesses have not historically been tracked by the federal government, but the potential impact on the defense industrial base is resulting in increased need for attention to this trend.13 Reductions in the supplier base have reduced contributions to both internal and industry-funded research, development, and product engineering. Prior to 2000, most suppliers would spend a minimum of 10 percent of sales on R&D and technical activities; this has now dropped well below 5 percent. Because suppliers are often the source of new products that spark industry innovations, this loss is difficult to gauge. The technical service engineering workforce is almost completely diminished at direct, or “Tier I,” suppliers to the PrCB industry in the United States. As is true across most of U.S. 13   S. Patrick. 2005. Remarks presented during a panel discussion at conference titled “U.S. Defense Industrial Base: National Security Implications of a Globalized World,” June 2, Industrial College of the Armed Forces.

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Linkages: Manufacturing Trends in Electronic Interconnection Technology TABLE 2-4 Companies Qualified to Supply U.S. Military Needs Under MIL-PRF-31032 Rigid Multilayer MIL-PRF-31032/1 Rigid Single/Double Sided MIL-PRF-31032/2 Flex MIL-PRF-31032/3 Rigid Flex MIL-PRF-31032/4 Ambitech Calumet Electronics Colonial Circuits Coretec (4) Cosmotronic Diversified Systems Dynamic and Proto Circuits Dynamic Details Endicott Interconnect Geometric Circuits Graphic Electronics Hans Brockstedt GmbH Lockheed Martin (2) Lone Star Circuits Micom Corp. PCT Interconnect Philway Products Printed Circuits, Inc. Sanmina-SCI (2) Sovereign Circuits Teredyne Inc. Titan PCB East Tyco Printed Circuits (3) Calumet Electronics Coretec (2) Cosmotronic Diversified Systems Dynamic and Proto Circuits Dynamic Details Endicott Interconnect Geometric Circuits Graphic Electronics Hans Brockstedt GmbH Lockheed Martin (2) Lone Star Circuits Micom Corp. PCT Interconnect Printed Circuits, Inc. Sanmina-SCI Sovereign Circuits Teredyne, Inc. Titan PCB East Tyco Printed Circuits (3) Coretec Hans Brockstedt GmbH Lockheed Martin Printed Circuits, Inc. Sovereign Circuits Strata FLEX Corp. Titan PCB East Tyco Printed Circuits (3) Colonial Circuits Coretec Cosmotronic Hans Brockstedt GmbH Lockheed Martin (2) Printed Circuits, Inc. Sovereign Circuits Strata FLEX Corp. Tyco Printed Circuits (3) NOTE: Numbers in parentheses indicate the number of separate manufacturing facilities. SOURCE: Qualified Manufacturer’s List, Defense Supply Center Columbus (Ohio), last updated May 6, 2004. manufacturing, secondary, or “Tier II,” suppliers have, with few exceptions, passed direct sales and technical support of PrCB products to Tier II distributors, who have little technical background and have difficulty troubleshooting products in any depth. The two preceding factors are reflected in the downsizing of the workforce in that the skilled workers are often the first to leave. The loss of capacity for innovation and the ability to compete for state-of-the-art contracts will continue to erode technical competency over time. These resources most likely will not be replenished in the current environment. Capital investments, R&D programs, and technical resources are being heavily emphasized in Asia, primarily China, in hopes of gaining market share for manufactured products. As the United States loses market share, Chinese plants hope to gain it ahead of their competition in Japan, Taiwan, and Germany. All of these factors are accelerating the already-declining U.S. production of PrCBs to a point that it is difficult today to perceive any technical advantage with respect to the manufacture of PrCBs in North America. In light of the very apparent lack of financial advantage to buying PrCBs in the United States, this acceleration could drive the continued demise of U.S. PrCB manufacturing. If the dozen or so large companies left operating were to abandon their manufacturing of PrCBs in the United States, the suppliers would be forced to follow the business to Asia (either partially or completely) to remain profitable.

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Linkages: Manufacturing Trends in Electronic Interconnection Technology Many of the smaller companies that relied heavily on PrCB manufacturing for their revenue will not make the transition and will fail. Other, more diverse companies such as Rohm and Haas or Dupont, could simply exit the U.S. market. Previous experience has shown that such companies may no longer offer their products for sale except through a third-party arrangement. This is very undesirable because it precludes support from the technology-owning partner. Materials and Chemistry The basic building blocks of the vast majority (estimated at more than 75 percent) of the government and military PrCBs manufactured today are epoxy or some other organic resin insulator, glass cloth, and copper. These basic commodity products are used in other industries such as the automotive, marine, construction materials, industrial fabrication products, paints, other electronics manufacturing, and other industrial applications. As an example, Owens Corning, the largest producer of flame-retardant woven glass cloth used to manufacture PrCB laminate, accounts for 80 percent of its revenue in the sales of glass cloth and related products outside the PrCB industry, primarily to the construction materials industry. The global shift of PrCB production volumes has resulted in numerous new competitors launching products for sale globally from offshore manufacturing locations. In addition, solvent-based resin manufacturing companies have felt pressure to move to offshore manufacturing locations with less demanding disposal regulations. This trend is expected to continue. As a net result, over the next 5 to 10 years the bulk of the base materials for PrCBs may no longer be manufactured in the United States. The Tier II suppliers, which take the basic building blocks and create laminate, specialty chemicals, and the other ingredients and tools needed to support the PrCB industry, do not generally have the depth of vertical integration that commodities suppliers do—in part because other industries that may be served by these Tier II suppliers are also migrating offshore. The automotive industry, for example, utilizes many building blocks similar to those needed for PrCBs and has become well established offshore. The semiconductor industry, which also shares many Tier II suppliers with the PrCB industry, is no longer dominated by U.S. manufacturing companies. Finally, many products manufactured for the PrCB industry are specific to the industry. While the specifications and requirements may be similar, they are not identical, and therefore these products are not easily cross-marketed. The simultaneous migration of all industries that buy from the same base could result in a destabilization of these Tier II operations based in the United States. This trend could then spiral, resulting in less technical support, then fewer suppliers, then fewer manufacturers, and so on. Factors that would contribute to this spiral could include increased scrutiny on corporate financial governance, fewer partnership opportunities for R&D programs and joint development efforts, higher costs for business services, and fewer skilled workers. The most likely short-term outcome under the weight of these compounding pressures is the migration of manufacturing outside the United States.14 The collapse or complete relocation of these Tier II suppliers to locations outside North America could be one potential outcome that would end the spiral. Equipment The types of equipment used to manufacture government and military PrCBs for legacy, present, and future requirements are particular to the PrCB industry. The companies that produce drill machines, lamination presses, imaging equipment, plating equipment and other finishing tool sets, testing equipment, and routers manufacture them specifically for the PrCB industry. These equipment sets are highly specialized and cannot be used for any other application. In the past 5 years, many of the U.S. manufacturers of equipment for the PrCB industry have gone out of business, merged with other companies, or followed the supply chain overseas. The closure of so many companies resulted in a glut of used equipment in the United States that could be purchased for 5 to 10 percent of its original value. Over this period, new equipment sales in the United States were very 14   National Research Council. 2004. New Directions in Manufacturing: Report of a Workshop. Washington, D.C.: The National Academies Press.

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Linkages: Manufacturing Trends in Electronic Interconnection Technology limited. U.S.-based equipment manufacturers looked to Asia, but found it difficult to compete where local manufacturers quickly reverse-engineer equipment for less than half the cost required for manufacturing in the United States. This trend has spiraled; today U.S.-manufactured equipment has become increasingly expensive in comparison with that available overseas, and companies are struggling. BUSINESS CLIMATE FOR PRINTED CIRCUIT TECHNOLOGY MANUFACTURING The U.S. manufacturing sector faces a number of central challenges, and each has specific relevance to the specialized production of interconnection technologies. The challenges discussed below are part of the changing landscape surrounding manufacturing, defense manufacturing, national security, and economic stability. Both small and large PrCB manufacturers must operate in the current business and industrial climate. Regulations and other constraints—including trade restrictions, environmental regulations, hazardous substance restrictions, labor availability and costs, and insurance and liability costs—influence their operation, both in the United States and globally. Cost of Compliance with Regulations Regulatory initiatives are emerging that require the electronics industry to incorporate environmental, health, and safety considerations into design and manufacturing decisions. Moreover, regulations governing the use, storage, transportation, and disposal of hazardous materials are beginning to influence the electronics manufacturing process. It is hoped that by addressing environmental management issues, electronics manufacturers can reduce both hazardous materials and the generation of hazardous waste. This effort might also lead to improvements in operating efficiencies, reducing procurement costs of raw materials. The electronics industry is preparing to comply with a number of restricted-materials laws. In 2003, the European Union (EU) enacted the restriction of hazardous substances (RoHS) directive, which bans the use of lead, mercury, cadmium, hexavalent chromium, and certain brominated flame retardants (BFRs) in most electronics products sold in the EU market beginning July 1, 2006.15 Both business-to-business and consumer products are covered. Although there are some exemptions to the directive’s chemical restrictions,16 by banning the use of critical materials in electronics products sold in key world markets, this directive may result in a significant change in the way products are designed for global sale.17 The European Parliament and the European Council are also considering legislation—Regulation, Evaluation, and Authorization of Chemicals (REACH)—that will require industry to prove that chemicals being sold and produced in the European Union are safe to use or handle. REACH policy will require the registration of all substances that are produced or imported into the European Union. The amount of information required for registration will be proportional to the health risks related to the chemical and its production volumes. Companies will also need to seek authorization to sell and produce problematic chemicals, such as carcinogens, mutagens, and teratogens. Toxic chemicals that persist in the environment or that bioaccumulate will also need authorization. The policy is slated for enactment in 2006.18 15   European Union. Directive 2002/95/EC of the European Parliament and of the Council of 27 January 2003 on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (RoHS). Available at http://europa.eu.int/eur-lex/pri/en/oj/dat/2003/l_037/l_03720030213en00190023.pdf. Accessed September 2005. 16   M. Pecht, Y. Fukuda, and S. Rajagopal. 2004. The impact of lead-free legislation exemptions on the electronics industry. IEEE Transactions on Electronic Packaging Manufacturing 27:221-232. 17   Note that this is part of a growing global strategy that is supported by a number of environmental organizations and governments. It affects all aspects of lead production, use, and disposal, and has the ultimate goal of separating lead from people wherever possible in accordance with precautionary principles. Appendix E in this report describes the rationale and existing time line for this strategy. 18   P.D. Thacker. 2005. U.S. companies get nervous about EU’s REACH. Environmental Science and Technology Online, January 5. Available at http://pubs.acs.org/subscribe/journals/esthag-w/2005/jan/policy/pt_nervous.html. Accessed September 2005.

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Linkages: Manufacturing Trends in Electronic Interconnection Technology California recently enacted the first law in the United States to establish a funding mechanism for the collection and recycling of computer monitors, laptop computers, and most television sets sold in the state. That law, the Electronic Waste Recycling Act of 2003 (SB20), also contains a provision that prohibits a covered electronics device from being sold or offered for sale in California if the device is prohibited from being sold in the European Union by the RoHS directive.19 The electronics industry is likewise beginning to take responsibility for its products at the end of their useful life. This responsibility also forms the basis for the “take-back” legislation that is being implemented in the European Union under the Waste Electrical and Electronic Equipment (WEEE) directive, beginning in August 2005.20 The directive encourages the design and production of electronics equipment to take into account and facilitate dismantling and recovery, in particular the reuse and recycling of electronics equipment, components, and materials necessary to protect human health and the environment. In the European Union, since July 1, 2003, materials and components have not been allowed deliberately to contain lead, mercury, cadmium, or hexavalent chromium.21 In addition, strict regulations have been put in place to dispose of components containing lead at their end of life.22 Lead was classified as category 1, toxic to reproduction (embryotoxic), and as a precaution, the European Union classified lead chromate pigments as category 3 carcinogens. In the United States, environmental regulation is not moving in the same direction as in Europe. In 2003, the Environmental Protection Agency (EPA) proposed revisions to the definition of solid waste that would exclude certain hazardous waste from restrictions legislated by the Resource Conservation and Recovery Act (RCRA) of 1976 if the waste is reused in a continuous industrial process in the same generating industry. The proposal may eventually exempt all “legitimately” recycled materials from RCRA hazardous-waste regulations. Final action on the proposal is expected in 2006. The EPA is also considering a rule that would exempt electroplating sludge from RCRA hazardous-waste regulations if it is recycled. In order to ensure that its domestic electronics producers can sell products in the EU market, China has advanced its own RoHS-type law. The draft Management Methods for Pollution Prevention and Control in the Production of Electronic Information Products of the Chinese Ministry of Information Industry would ban the use of lead, mercury, cadmium, hexavalent chromium, and certain brominated flame retardants in consumer electronics and electrical equipment sold in China. South Korea is also considering the enactment of an RoHS-type law, although details are unclear at this time. Asia has many industrial regulations that are not enforced, and considerable time may elapse before attempts at enforcing these regulations are instituted. While metals are historically important, many electronics products contain brominated flame retardants. Following recent EU moves to ban the use of some brominated flame retardants found to be persistent, bioaccumulative, and carcinogenic, a number of U.S. states have enacted legislation that bans the use of BFRs in consumer goods. Some legislation may include tetrabromobisphenol-A (TBBPA), the leading flame retardant used in circuit boards and computer chip casings. Plastic components of electronics products, such as circuit board laminate, cases, cables, and other structural elements, are likely to be constructed with brominated plastics. There is additional concern over the use of brominated materials owing to their potential to generate halogenated dioxins and furans during open burning and improper incineration. The cost of compliance with workforce regulations on environment, safety, and health issues can constitute a large part of corporate expenses. As the production of electronics becomes a global enterprise, some of the differences in regulations from country to country may matter less and others may 19   California Department of Toxic Substances Control. Electronic Waste Recycling Act of 2003 (SB20). Available at http://www.dtsc.ca.gov/HazardousWaste/CRTs/SB20.html. Accessed September 2005. 20   European Union. Directive 2002/96/EC of the European Parliament and of the Council of 27 January 2003 on Waste Electrical and Electronic Equipment (WEEE). Available at http://europa.eu.int/eur-lex/pri/en/oj/dat/2003/l_037/l_03720030213en00240038.pdf. Accessed September 2005. 21   European Union. Directive 67/548/EEC on the Classification, Packaging and Labelling of Dangerous Substances, Annex 1, as last amended by Directive 2003/32/EC (28th ATP). Available at http://europa.eu.int/eur-lex/pri/en/oj/dat/2003/l_105/l_10520030426en00180023.pdf. Accessed September 2005. 22   European Union. Directive 2000/53/EC of the European Parliament and of Council of 18 September 2000. End-of-life Vehicles. Available at http://dkc3.digikey.com/PDF/Marketing/ELVdirective_2000-53-EC.pdf. Accessed September 2005.

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Linkages: Manufacturing Trends in Electronic Interconnection Technology matter more. Costs related to compliance with regulations include minimizing litigation costs as well as the cost of maintaining balance in the media through public relations. The cost of compliance with regulations may continue to differ substantially in the United States from what it is in Asia, Europe, or the rest of the world. In some cases, however, the global nature of supply and demand can cause regional regulations to become de facto global regulations. Because many companies supply components worldwide, they are finding the cost of producing two types of printed circuit boards, both with and without lead, to be a poor business proposition. Challenges in Supply-Chain Management Outsourcing and offshoring are growing trends with dramatic effects on supply chains and supply-chain management. Within these trends, supply chains are also evolving. With all of these changes, some of the differences discussed here between commercial and military acquisitions and commercial and military supply chains are growing, whereas other differences may be disappearing. Traditional military procurement has meant onerous accounting processes under the Defense Contract Administration Agency and adherence to rigorous military specifications. Under defense specifications and qualified supplier guidance, companies that wished to supply the government followed a very strict set of rules; the process guaranteed that the product was exactly what the user specified. When the Department of Defense (DoD) moved to performance-based contracting, procurement officials assumed that the product would be produced to the same level of quality as under previous procurements, and that the component performance would be met via that agreement. During the government’s struggles to modernize acquisition, the commercial world has evolved as well. Information technology has had an overwhelming effect on supply-chain management. According to a recent NRC report: Information, data communication, and data processing technologies are powerful tools that can be used in every element of the manufacturing enterprise, including just-in-time delivery of raw materials; activities on the factory floor; shipping; marketing; and strategic planning. These tools can manipulate, organize, transmit, and store different types of information in digital form. The impact of these technologies has been compared to that of the technological advances that spurred the Industrial Revolution.23 Some industry analysts estimate that total supply-chain management, including remote step-by-step process controls, will be ubiquitous within 5 years. A driver for this potentially disruptive change in PrCB manufacturing is the introduction of RoHS. To guarantee, for example, the absence of lead in a board, a manufacturer may need to produce the same level of documentation once required by DoD. This is proving to be especially necessary when a product changes hands more than once during manufacturing. Advances in systems, processes, documentation, and information technology may help to make this kind of tracking inexpensive for all components. In defense acquisition, the transition to performance-based contracting has been difficult. Expectations exist for materiel to be supplied, but there is little management of the supply chain. In the commercial world, supply-chain management involves understanding the daily status of materials sources, knowing the potential risks of different suppliers, and making sure that multiple sources are available. It also involves effective communication of projected needs and time lines to the suppliers. While government purchasers are able to direct integrators to buy from particular sources, such as a directed buy for “critical” components, this is not normally done as part of a strategy to ensure constant supply. In the commercial world, these practices are common and are driven by the bottom line; good companies are always assessing their supply-chain risk.24 DoD (and the rest of the federal government) has never needed to track its supply chain in the same way that a company would. It is becoming clear, however, that some oversight and assessment of supply-chain capabilities are needed. It is likely that the solutions that have been developed by responsible companies with similar production volumes and applications—for example, biomedical 23   National Research Council. 2004. New Directions in Manufacturing: Report of a Workshop. Washington, D.C.: The National Academies Press, p. 14. 24   S. Cohen and J. Roussel. 2004. Strategic Supply Chain Management. New York: McGraw-Hill.

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Linkages: Manufacturing Trends in Electronic Interconnection Technology devices or commercial aerospace components—may be the most useful models for future supply-chain management. According to Steven Mather of the Computer Sciences Corporation, “Ultimately, force readiness is a primary concern of the Army, whereas in the commercial sector the primary concern is profitability.”25 DoD acquisition managers who are attempting to integrate commercial purchases into their portfolios are also beginning to incorporate the responsibilities of being a good customer. Cost of a Skilled Workforce Traditionally, the cost of workers in a manufacturing enterprise had been limited to wages and benefits. In recent years, the differential among global wages has received most of the attention from company managers. Benefits are also an important factor—global differences in the cost of health insurance and pensions are becoming a larger issue than wage differentials in many cases. A number of other costs are unaccounted for in most workforce equations. The cost of maintaining workforce skills in a changing industry can be very high. Hidden costs also exist in maintaining a corporate history in the art of manufacturing processes for some defense components in legacy systems. For a small shop, the loss of the skills and background knowledge of one or two people can be disastrous. In addition to such changes in workforce accounting, organizations are being pressured to provide enhanced levels of service to their employees. Doing so is key to retaining high performers, avoiding the costs of excessive recruiting and training, and ensuring that workers are prepared to succeed in a changing technology environment. Many manufacturing companies are facing seemingly contradictory goals, needing both to cut workforce costs and at the same time to invest in the workforce so that it can do more. Challenges in Innovation In electronics as in all technologies, product cycles are getting faster and technology complexity is increasing.26 This cost of keeping pace with all of this new technology is increasing in parallel. In addition to an increasing demand for new products, the demand for traditional products with innovative features is also increasing. To remain competitive, engineers are seeking ways to add more capabilities and compatibilities to all products. In many cases, accomplishing and even implementing a technology can come well before scientific understanding of the basic underlying principles is achieved. To understand many new technologies, a more interdisciplinary approach and more innovative tools are needed. Complex multilayered PrCBs are stressing the state of current knowledge and will require ever more know-how and scientific investigation. While it is still true that fundamental understanding may be necessary for optimizing or adding capabilities, it is important to realize that we may not truly understand the technology we use today. This can mean that new technologies cannot be fully exploited without investment and ideas. In their early development, PrCBs were relatively simple structures. The desire for ever-greater system performance has driven the PrCB industry to combine disciplines, technologies, and tools in order to achieve tremendous complexities; this process calls for ever-increasing knowledge of materials and processes. Today, the most advanced interconnection technologies, including the creation of metal/plastic composites and many-layered structures, and the combining of optical and electronic phenomena, are seeking to exploit phenomena that are beyond known and tested practices. Various factors—the variety of raw materials, the decreasing thickness and size, and the challenges of heat dissipation—are all stressing the current knowledge of what can be done and how to do it. 25   P.E. Clarke. 2003. Re-engineering the Supply Chain. Military Information Technology 7. Available at http://www.military-information-technology.com/article.cfm?DocID=28. Accessed September 2005. 26   Note that the product cycle of a PrCB is generally bound to that of the product it serves. Product cycles for items that incorporate PrCBs range from as short as 6 months for a cellular telephone, to up to 5 years for automotive components, and as long as 30 years for infrastructure applications.

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Linkages: Manufacturing Trends in Electronic Interconnection Technology While innovation occurs everywhere, not just in research laboratories, access to the necessary know-how, research equipment, or even workers with scientific or engineering training is something that small or niche manufacturers cannot typically afford. Only enterprises with sufficient scale and scope—typically larger companies and government agencies—can pay for this type of knowledge generation. One of the biggest challenges for innovation facing the specialty PrCB industry is the difficulty of efficient low-volume operation. Whereas the typical production of microchips may be millions per day, the many configurations of boards mean much smaller quantities of each. DoD routinely orders as few as one or two replacement parts. Increasingly, manufacturing demands six sigma and higher quality;27 it is impossible to even gather those statistics in these low-volume production rates. Therefore, reliability must be engineered in a different way and will require new levels of innovation. Efficient low-volume specialty production could become an alternative paradigm that could offer a competitive advantage to innovative partners in this industry. It is important to note that if such processes were to become practiced worldwide, this approach would offer DoD the ability to produce the needed specialty parts in desired locations with low investment. Another major driver requiring innovation is that the chemical processes for manufacturing PrCBs are some of the most environmentally difficult. Waste-disposal costs are very high, and closed-system processes are needed. In addition, the complex chemistry means that processes can be easily upset and one imbalance can result in an entire manufacturing run needing to be scrapped. In many cases, the failure is not known until the boards are tested. A final note on the need for innovation is the coming and overwhelming challenge to manufacture all electronics without lead solders, lead-based ceramics, or lead coatings. Though the engineering challenges are proving to be problematic on many levels, the ability to seamlessly integrate no-lead technology into current and legacy systems may be even more difficult. KEY FINDINGS AND CONCLUSIONS By a number of measures, the PrCB industry in the United States is in a steep decline. Changes in the number, size, and scope of the companies that manufacture PrCBs appear to be a result of the evolution of global markets and production. The companies that supply the PrCB manufacturing industry are particularly affected by these trends. The committee finds that the 400 or so U.S. companies may not be able to stay competitive in this high-technology area. It is probable that without outside support, these small PrCB suppliers will not continue to be able to meet the requirements of U.S.-manufactured PrCBs for government and military applications. Interconnection technology—boards and other printed circuitry—is a key element of commercial and defense systems. For the companies that meet U.S. military needs today to sustain their performance over the long run they will need a direct linkage to the technology advancements of the global PrCB industry. It is becoming apparent that DoD purchases from military suppliers will not be large enough to create that linkage. Therefore, the loss of this industry in the United States may adversely affect the ability of the remaining companies to supply future military needs. 27   Six sigma is a data-driven approach and methodology for eliminating defects. It is intended to achieve six standard deviations between the mean and the nearest specification limit for any production process.