Industry News Circuit boards: Are they the bottleneck in the supply chain?
From mass production to scarce goods - changes in the printed circuit board industry indicate that a shortage of printed circuit boards is anything but unrealistic. The question is not whether, but when this supply bottleneck will occur.
Most purchasing managers find it difficult to imagine a shortage of printed circuit boards such as capacitors and resistors and delivery times of up to 50 weeks. For many procurement managers, the "begging" for MLCC allocation is a reason for stress, but in the PCB segment, this is primarily the telephone ringing of countless PCB suppliers. However, there are many indications that a shortage scenario for printed circuit boards is anything but unrealistic. The question is not whether, but when this supply bottleneck will occur.
At the moment, the PCB market in Europe presents itself as a buyer's market par excellence. Asian low-cost manufacturers - mostly in cooperation with dealers - offer printed circuit boards at dumping prices even in smaller quantities and pre-series sizes. This is putting increasing pressure on European manufacturers, almost two-thirds of them from the German-speaking world. Although wage costs are rising steadily in Asia, there is still no widespread internalization of external environmental effects in the cost accounting of electricity- and water-intensive production.
For example, the electricity generation of Chinese producers, which is still largely based on fossil fuels, results in an energy price that is on average 75% lower, the most important cost unit beside the basic material. Even though in the Far East a rethinking is taking place with regard to stricter environmental and fire protection requirements, in practical terms European manufacturers are still the exclusive pioneers - and unfortunately, this also applies to the necessary adjustment investments.
In addition, even unprofitable companies in China can continue to offer printed circuit boards at dumping prices because they are still "fed" by a lending system that is opaque from a European point of view.
2/3 of all PCBs in demand in Europe come from Asia
The trend towards exiting the market is also fuelled by succession problems and a shortage of skilled workers. In terms of career prospects and work-life balance, a chemicals-based and constantly consolidating industry with three-shift production has little appeal for young people. The profession of electroplating technician is given a similar future perspective to that of a mining boom operator.
The consequences of these developments are serious: between 2017 and 2018 alone, the number of European manufacturers fell by 10 percent from 223 to 202. Around two-thirds of all printed circuit boards in demand in Europe are already manufactured in Asia.
Apart from those who are disturbed by the disastrous ecological balance of PCBs manufactured in the Far East or who attach importance to "Made in Germany", the extraction of local resources will cause most buyers little sleepless nights as long as the numerous sources of supply deliver cheaply and quickly. But there is a great danger that precisely these sources of supply might dry up in the future.
Special applications with special designs on the rise
While European automotive electronics remain attractive for Asian manufacturers due to the high order volume, the remaining European demand for printed circuit boards is becoming increasingly unattractive. The printed circuit board market in medical electronics, military electronics, and aerospace is increasingly being broken down into small-scale special applications with special designs and superstructures.
High-reliability applications with thick copper printed circuit boards (>140 µm copper thickness) or Semiflex applications with a guaranteed number of bending cycles involve high production risks with - seen from Far Eastern dimensions - low sales potential. The segment of industrial electronics that is supposedly the most attractive besides the automotive industry with 40% market share is stagnating technologically in the conventional area of simple two- to four-layer circuits due to the reduced need for miniaturization.
Their production promises little margin, at least in the technologically advanced production facilities in Asia. For Asian manufacturers, however, these are available in large volumes for the technological drivers of computer and communication with their ever-increasing requirements for miniaturization in terms of track widths, micro-drilling, flex, and embedding technologies.
At the same time, countless, less well-known and rather medium-sized manufacturers from the Far East, whose capacities find their way to Europe via a close-knit dealer network, are facing a market shakeout that will further intensify supply security. Sooner or later, environmental pollution in the Far East will have to be perceived as a threat to people and growth, so that not only will stricter laws be enacted, but they will also actually be implemented rigidly.
Although poorly quantifiable, more and more cases are being reported in which, in particular, medium-sized and smaller production plants have simply been closed due to environmental violations. The usefulness of subsidizing certain sectors in terms of profitability and environmental impact is also increasingly being questioned.
While the processes mentioned above are only gradual and visible in their beginnings, they lie in a business and environmental logic, to which China, in particular, will have to submit. Finally, the abrupt consequences of current political developments, according to which the interruption of the flow of goods is again considered as a means of political pressure, should also be considered.
A market with a 2/3 resource dependency could very quickly become the focus of political decision-makers, especially since a significant increase in production capacities in Europe would be extremely difficult under the given conditions. Know-how for production and machine equipment for the complex manufacturing processes have been lost and approval procedures for the construction of Fabs with electroplating plants and wastewater processing take years.
"Think global, buy local“
In view of these risks with such a strategically important and at the same time economically rather insignificant component (as a rule 5% of the costs) in an assembly, I urge the purchasing managers to again increasingly look for strategic partners among the circuit board manufacturers on site. Not least for environmental reasons, the rule should apply: "Think global, buy local".
This article was first published in German by Elektronikpraxis.
* Andreas Brüggen is managing partner of MicroCirtec and Precoplat from Krefeld.