The headlines of late have been filled with reports on the pending US ban on domestic companies from conducting business with Huawei.
In submitting the order, President Trump cited cyber-warfare, espionage and threats to US national security as rationale for the ban.
Less noted: the impact on bare board suppliers from China. After all, the executive order “prohibits transactions that involve information and communications technology or services designed, developed, manufactured, or supplied, by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary” as determined by the Commerce Secretary.
So, while Huawei is a $100 billion company, larger than IBM, Sony, Hitachi, Panasonic and all but a few other tech firms, the declaration could have tentacles that reach far beyond the Chinese OEM. Even if all the defense industry primes, for instance, buy all their boards onshore (doubtful), many others do not, including the financial markets and key industries such as nuclear, power, and so on.
Almost every North America-based board shop today brokers boards from Asia, mostly China. Their suppliers are, in turn, generally located in China as well. That includes the vast majority of the laminate industry. Sure enough, we are hearing reports of major laminate makers suspending shipments of key materials because of the executive order, including ones for the US defense primes.
What’s the alternative? North American board fabricators lack the capability and capacity to take on high-volume production. The EMS industry has the capability, but not the capacity. And that doesn’t begin to address the region-to-region cost differences.
Then there’s Washington. The legislators are simply ignorant when it comes to understanding supply-chain issues. The executive order targets companies that could put the US economy at risk. Any logical read of that would see the telecom industry is only one part of the equation. Wall Street is equally at risk.
Just because Cisco or Juniper or HP or IBM or Dell or Arista don’t have Chinese names doesn’t mean they aren’t as reliant on the China supply chain as Huawei. Same goes for their EMS networks. Intel has six chip fabrication plants and three assembly/test sites. Two are in China. Qualcomm is a minority owner of SMIC, which has nine plants open or planned in China. It also has a JV assembly/test house with Amkor in Shanghai.
Look at HP’s supply chain. (The OEM doesn’t get the attention it once did, but its annual revenues are $20 billion more today than they were two decades ago.) HP is sourcing product from China facilities of Foxconn, Jabil, Flex, Celestica, Inventec, New Kinpo, Wistron, Pegatron, Qisda, and TPV, among others. The workers on the HP lines number in the tens of thousands. That can’t be replaced easily, if at all.
Not just the large shops stand to be squeezed. Besides relying on China for raw materials, many smaller North American fabricators (read: almost the entire industry) also outsource certain services and otherwise procure other relatively finished goods from there, such as engineering, laser drilling or mass lam boards.
Insofar as consumers are concerned, it’s probably a good thing this isn’t happening during the Christmas ramp. But that date is drawing near. Read Peter Bigelow’s ROI column this month for a reminder of what the impact could be. It’s not pretty.
Even if the questions surrounding Huawei are sorted out – a big “if” – the fun won’t stop there. At this writing, the US government is considering action against other Chinese OEMs, including ZTE and Hikvision. Can we really expect China not to retaliate in turn? And if it were to do so, are we prepared for the outcome?
P.S. We strongly encourage readers to look at the program for the PCB West trade show coming in September to the Silicon Valley. The technical conference has been expanded to four days, and the sold-out show floor has more than 100 exhibiting companies. Visit pcbwest.com for details.
P.P.S. We have made a few revenue updates to last month's article on the Circuits Assembly TOP 50 EMS companies. They can be found online at circuitsassembly.com.