SMTC is a mid-size provider of end-to-end electronics manufacturing services (EMS) including PCBA production, systems integration and comprehensive testing services, enclosure fabrication, as well as product design, sustaining engineering and supply chain management services. SMTC has facilities in the United States, Mexico, China and Canada. Services extend over the entire electronic product life cycle from the development and introduction of new products through to the growth, maturity and end-of-life phases. The company has been in the news recently when they announced they were pulling out of China in response to the tariff war. EMSNOW caught up with SMTC’s CEO, Ed Smith for more insights.
EMSNOW: It’s been nearly a year since SMTC acquired MC Assembly. How is that going — is the integration complete and what are the benefits so far?
The integration is complete and the original benefits are still intact. We have entered the Aerospace, Military and Medical markets , we have increased our capacity in Mexico as customers continue to drive more business back from Asia to the Americas market, and we reduced our reliance on any one market or customer. So we are now growing faster in the Mil/Aero market than other markets, we have more than doubled our capacity in the Americas market and have created an NPI center in Billerica for our customers to launch new products. We believe the long term benefits will start showing in our results in the 2nd half of 2020. We are very excited about the future.
EMSNOW: SMTC’s leadership team spent a substantial amount of time in various roles within Avnet’s components business. What advantages – and possibly disadvantages – does that experience bring to an EMS company?
Great question. With approximately 70 % of our revenue derived from components and other supply chain products, our experience makes us more nimble, more informed and more flexible. One example of this is when we arrived at SMTC in 2017 MLCCs were tight and we made the risk buy of parts for 12 months in advance and were able to grow over 45% year over year due to these parts being available to us. We have also been able to work with our distributor partners to be more flexible and help in this growth, while covering the downside risk. In both a tight market and an excess market, understanding what to do and reacting quickly will give us a distinct advantage over our competitors and help with customer satisfaction. The disadvantage is that we need to bring in some good manufacturing and quality talent to cover the gap in these areas of expertise, as in distribution you are not as experienced in these areas.
EMSNOW: SMTC’s global footprint includes facilities in North America and China. Recently you announced you would be pulling out of China. What will that do to your short term financial performance, and what is the long term plan for Asia?
Leaving China was driven by our customers’ desire to be in Mexico or SE Asia. I think we have the Mexico part covered very well as we have almost 500K sq ft available to manufacture and another 16 acres to build on. We are searching for space in SE Asia and have not found as of yet the right solution, but will continue to move along with a plan to be there as quickly as possible. The short term hit to our financials is outlined in our recent announcements.
EMSNOW: SMTC’s goals are focused on growth. How do you plan to execute on your very aggressive profitability and growth goals?
We are a growth company, we focus on OTD, Quality and Flexibility to create growth and profitability. Before the acquisition our growth was above 40% and after it has slowed, because the market conditions have not been our friend as of late. We have really picked up the pace in the 3rd and 4th quarters, mainly in the customer and program acquisition space. We have also picked up in the Mil/Aero space and this will lead to faster growth in Mil/Aero than other markets and therefore market share gain.
EMSNOW: SMTC’s markets served have shifted somewhat since the acquisition. Was there substantial overlap in customers with MC Assembly, or did the mix change? How has that helped favorably position the combined organization?
The great news about the overlap was there is very little between the two companies and so the new markets and customers are all upside.
EMSNOW: What do you see as the strengths of the EMS industry going forward into the ‘roaring 2020s’?
The EMS industry will continue to strengthen as technologies go smaller and smaller. The EMS will also benefit as suppliers move to a more direct model , but will also lose some flexibility .
EMSNOW: What do you see as the major challenges faced by the global EMS industry?
The continued uncertainty of trade wars and tariffs makes long term planning a challenge; the investment vs return will continue to challenge our markets until it is resolved.