Caveat Lector
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mike
buetow
editor-
in-chief
In Defense of Diversity
M

unitions are cool again.

Well, maybe they always were. But the emphasis by North American manufacturers on procuring defense contracts has perhaps never been greater.

In the throes of the dotcom meltdown of late 2001 to early 2003, when China and Taiwan hoovered up the vast majority of the Western PCB market, forcing those hardy remaining souls to repurpose their business plans, the Pentagon became an unwitting savior. Manufacturer after manufacturer pivoted from the “3Cs” (computers, communications, consumer) to CET&I (military communications, electronics, telecommunications, and intelligence technologies). They eschewed past complaints of onerous red tape and sprung for the certifications to elbow their way into the Pentagon supply chain.

There wasn’t much choice at the time. It was military or bust.

Going back to 2001, the United States made about 45% of the world’s electronics equipment. Defense and related high-rel sales made up less than 10% of the US domestic fabrication market, which at the time was coming off a record year at around $11 billion in production output spread across 650 or so facilities.

We all know what happened.

But about that cure. As we reported in last month’s digital edition (“US Defense Suppliers Have Begged for Help. A Pandemic Helped Them Get It”), 145 of the 202 printed circuit board facilities in the US as of 2017 supplied the US Department of Defense in some manner.

My concern is that North America might put all its eggs in one basket. This is more an issue for fabricators than assemblers, since the former is less automated and requires more skilled labor hours per $1 million of product shipped. Also, the workforce is aging faster on the fab side in the West, and it’s generally more difficult for fabricators to recruit new engineers and operators, as the industry as a whole and the companies are smaller, and the opportunities for career growth are fewer. Quick swings in demand can truly hamstring a company in the short-term, and many board shops don’t have access to enough capital to sustain long downturns.

Despite the significant hoops, there’s no question military work holds appeal. The end-customer pays. The margins are relatively steady. There is always the promise of future business, even if the demand volume tends to be somewhat administration-dependent.

I recall a warning IBM economist Phil Swan made in 2001 at an IPC TMRC meeting. In tough times, he said, governments look inward, which could further upset the supply chain. “Most legislators tend to be provincial when push comes to shove. Only 40% of the US Congress has a passport. They’re not in touch with the rest of world any more than they have to be. The majority haven’t served in a war and don’t have that experience. It wouldn’t take a lot for them to shut the door and [hurt] economic globalization.” How prescient does that sound today?

At that time, the North American fabrication market was still a $11 billion entity. Today it’s less than a third of that. My best estimate pegs the Defense Department procurement of printed circuit boards at a little over $1 billion annually. That’s not far off where it was 20 years ago.

As such, I admit to being concerned when I see so many companies focusing their efforts on the A&D market. Commercial aerospace, as we’ve seen, is the definition of boom/bust (absolutely no pun intended. Seriously.). Military is steadier, but less so than generally appreciated. It’s not uncommon for the CET&I budget to gyrate 10% in either direction year-over-year.

For those still doubting, keep this in mind: Just 10 years ago, in fiscal 2011, the US defense budget for CET&I was $17.7 billion. Two years later, it was $13.6 billion, a reduction of almost 24%.

Is your business ready for that?

Mike Buetow
P.S. We have three great webinars coming up in the next two months: Chrys Shea on screen printing, Greg Papandrew on reducing bare board procurement costs, and Dr. David Bernard on getting the most from your x-ray inspection system. Visit pcb2day.com for details.