The Revival of Vertical Manufacturing
09/01/2003
By Frank Juskey
A number of years ago when I became involved in electronics manufacturing, many of the large companies that dominated the marketplace, such as IBM, Motorola and Xerox, operated as "vertically integrated" organizations. That is to say, they performed manufacturing internally at nearly every stage of electronics development. In essence, they had divisions that each operated as specialized manufacturing companies with the benefit of "one-stop shopping."
Then, pricing pressures and the movement of low-cost manufacturing offshore slowly eroded that trend. At the time, it appeared that manufacturing, which traditionally had been vertical, was moving to a leaner, focused, more horizontal manufacturing style.
That's about when I left a major OEM to join the swelling ranks of subcontract manufacturers. My first job in this new position was to integrate SMT assembly with chip and wire assembly. (What I had been involved in years earlier in thick film manufacturing was being translated into a laminate format to reduce cycle time and cost.)
As was the practice at the time, I contacted most of the major electronics manufacturing services (EMS) suppliers for quotes on the SMT portion of the assembly. Much to my surprise, none of the major players, as well as few minor ones, bothered to return the quotes or indicate a remote interest in working with us to develop this new technology — which we had named system-in-package (SiP). The reasoning, we came to learn, was that while the EMS sector had the talent and resources to perform the assembly, there was not enough money in it at that time when compared to building large motherboards.
With this stiff reproach, we decided to bring SMT in-house and vertically integrate SMT into our traditional chip and wire business. Because the company I had come from was an acknowledged leader in SMT, it did not take long for us to attract some of the best people in the field and begin our SiP manufacturing operation. Within 15 months, we went from building our first prototypes practically by hand to producing more than six million modules per week on 11 SMT lines working 24 hours per day, seven days per week.
Recently, I have noticed that customers previously content in dealing with several contract assemblers now only want that once familiar one-stop shopping. In other words, what they divested themselves of only a few years ago they are now looking for from suppliers. Many OEMs, for example, now expect subcontractors to manage wafer foundry sourcing, laminate substrate inspection and purchase, as well as buying and kitting passive components, while managing the entire supply line. This is in addition to performing the assembly, testing, singulation, marking, packaging and drop shipment to the customer.
When I stop to look at what we are doing, it is pretty much what we did when I was with an OEM and was part of a vertically integrated company.
Based on some headlines I have been reading lately, it appears that the EMS sector has awakened to the benefits the IC packaging industry now presents to them. This sector also is aware that it is much less difficult and equipment-intensive for a packaging house to move up the manufacturing food chain than it is for an EMS to move down to the packaging level.
Due to these factors, and the fact that many OEMs need IC suppliers to integrate the required circuitry into their offering so that they do not have to add more manufacturing equipment, OEMs and EMS suppliers are turning to subcontractors as a valued resource. By outsourcing SiP assembly and related technologies, companies now can specify a single integrated component, reduce overhead, bolster the bottom line, and save the time and effort of working with multiple vendors. In essence, vertical integration has now re-established itself in the subcontractor sector.
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FRANK JUSKEY, technology manager, may be contacted at Advanced Interconnect Technologies Inc., 6800 Koll Center Pkwy., Ste. 220, Pleasanton, CA 94566; (925) 426-3100; E-mail: [email protected].