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Laminate Companies: On the Move.

IT took until the second business day of the new year for the chips to start falling in the US printed circuit laminate industry. On the same day, Isola changed hands, and Park Electrochemical announced it was reviewing options for its PCB unit--a move generally seen as a precursor to a sale.

As the East Coast braced for a winter blizzard of epic proportions, Park Electrochemical sent a cold shiver down the spines of more than a few industry observers with its announcement of a "strategic evaluation" of its core printed circuit materials business, one that could spell the end of one of the last domestic manufacturers of FR-4 in North America.

Park has been paring its PCB operations over the past few years amid declining revenues and tighter margins. Even as the firm's aerospace revenues have grown, overall Park sales have fallen year-over-year in 10 of the past 11 quarters, more than half the time by double digits. And said PCB revenues have been falling despite a rebound in the overall bare board market.

Although it generates most of its revenue (roughly three-fourths) from the PCB materials unit, sources indicate the firm sees more upside in its aerospace materials division, which isn't as susceptible to the commodity pricing pressures of board-level laminate. The sale or closure of the division could further disrupt the North America supply chain, however.

Park's long history is heavily intertwined with that of the North American PCB industry, and one of the last remaining "family" firms. Cofounded in 1954 by Jerry Shore, his son Brian is now CEO and grandson Ben a senior vice president. The Nelco and Neltec brands are synonymous with the heyday of the North American bare board industry. Its sale, whenever that day comes, will truly mark the end of an era.

Meanwhile, in Arizona, Isola completed the transfer of its equity ownership to an investment group led by Cerberus Capital Management. This deal was not a surprise: Isola had reportedly been trying to restructure a debt load of more than half-a-billion dollars since last summer.

Isola was primarily owned by the investment firms TPG Capital and Oaktree Capital Group. It's unclear at present how the stakes in the company are now divided. No doubt Isola won't be one of the bidders for Park, however.

Couple this with the changes at Arlon over the past two years, and the US laminate industry continues to be in flux. Many of the other major internationally based players appear stable: Kingboard, Shengyi Technology, Nanya, Panasonic, and Ventec (which merged with TMT in 2016). Among US-based vendors, Rogers' position at the high-end has enabled it to remain financially sound. It may be the only one.

Demand for lower-tech materials isn't enough to sustain footprints in higher-cost markets. M&A can result in stronger, more viable companies. Let's hope the future for Park (or whomever buys it) and Isola is brighter than the present, as the North American supply chain depends in large part on their success.

One market that is defying gravity is that of PCB design tools. The sector grew a healthy 13% in the third quarter, continuing a solid run that has lasted two years. Indeed, it marked the sixth time in the past seven quarters that PCB/MCM software sales have risen. Even better, the Americas remain the EDA's largest region. That's critical, since ownership of the design IP remains the Holy Grail.

Whether bare board fabricators can take greater advantage is another story. As Sanmina closes its doors in Owego, NY, taking the largest bare board plant left in the US offline in the process, the incentive for suppliers to take root here is lessened.

It's a vicious cycle: fewer fabricators means a smaller supply base. A smaller supply base means less competition, which means less innovation, which further tightens the noose around the fabricators.

We've been speeding toward this moment since the tech downturn of late 2001/02. I see three possible outcomes: 1) The market continues to dissipate; 2) new technology (3D printing?) and manufacturing methods (Whelen Engineering?) take hold, offsetting the labor cost differential; 3) a strong leader steps up with the vision--and an executable plan--to recharge the domestic industry.

If growth and success are in the cards, it's time for real leadership to emerge.

mbuetow@upmediagroup.com

@mikebuetow

P.S. Listen to my new podcasts on the PCB design software market and design collaboration tools at upmg.podbean.com.

MIKE BUETOW

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Title Annotation:CAVEAT LECTOR
Author:Buetow, Mike
Publication:Printed Circuit Design & Fab Circuits Assembly
Date:Feb 1, 2018
Words:746
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