In our industry we all talk of good times and bad times, and there is much speculation about a looming recession yet again. I have been wondering whether there will ever be such a thing as ‘good times’ again in our industry.
Every year seems to get harder, presenting more challenges and requiring more effort, more work and higher volumes to achieve the same bottom line. The world market is becoming extremely competitive, components are getting smaller and harder to place, and yesterday’s ‘new equipment’ is no longer fit to place today’s tighter component requirements. Hence requiring further investments, more financing and steeper overheads to do the same job .
The problem with using the term ‘looming recession’ is it alludes to the fact that things will improve after the so-called recession, which I am not entirely sure will happen. Has there ever been talk of labour prices coming down, Eskom striking an oil field and reducing the cost of electricity or a government initiative offering manufactures a tax break or employment incentive? I doubt it.
Therefore as an industry we should not be looking at interim measures or quick-fix solutions but rather be planning for long-term sustainable solutions enabling us to walk the tough road ahead.
At this point I would like to thank Jason Wilford, our outgoing CEO, for all his hard work at Microtronix and wish him farewell and good luck in his future endeavours. His articles in Dataweek were always challenging and, to his credit, often left a few feathers ruffled.
In one of his recent articles Jason spoke of the demise of one of our fellow contractors in Cape Town and only a few weeks ago we stood in Alrode, Alberton, and watched yet another industry leader and employer of 200 staff get reduced to an empty warehouse in a matter of five and a half hours.
One might think that the demise of two of your biggest competitors would leave a warm feeling knowing that there is possibly more work or better business headed your way. I can assure you that this was not the case; in both instances I came back to the office feeling empty and concerned that this could so easily be my company next.
I had some advice from a successful friend once who said “never take on a job so big that if it goes wrong you stand to lose everything.” I have never taken this advice and so many times risked everything to get to the next level. In hindsight any of these big projects, or some that we are currently busy with, could easily prove to be a tipping point of even the most successful business.
I have experienced firsthand in recent months how easily expense rises, over-stocking of components, machinery investment and increased staff counts add up, placing your entire organisation at risk. I was also amazed at how fast news travels in our industry, hearing from a few different sources of the pending demise of my very own organisation, much to my amusement and surprise.
The very people and organisations that stand to lose the most by the closing of yet another contractor were the ones exasperating the problems and provoking fear in some of our key customers, instead of finding solutions to help our problems and focusing on their own systems and inability to deliver components on time.
It seems that a downturn in an organisation can easily become a disaster due to small industry talk and without even knowing why, failure becomes a self-fulfilling prophecy.
Anyway, to that end, I can assure all our suppliers and customers that Microtronix is in great shape. We have a healthy order book and massive capacity due to our recent equipment investments. We have an extremely loyal customer base and I would like to thank our customers and suppliers who have supported us through our growth and a few tough months this year.
Investing in the future
I have often wondered why some of our competitors own and operate a few different brand machines, often switching brands as the newest and best deals are offered. Microtronix has always owned and operated Yamaha machines, citing machine compatibility, common feeders, spare parts etc. as well as common training amongst operators as our key reasons for not wanting to change.
It was therefore a huge decision to change brands and invest in the new Universal line to give us a boost in our placement capacity. Along with the three new Universal machines, we also acquired two used Samsung machines, negating my theory of owning only one brand of equipment.
It has been a challenge as both operators and supervisors are always reluctant to change and constantly expect exactly the same from the new equipment as they are used to, instead of being open to change and accepting the new equipment’s good and bad points.
After six months of trials and a steep learning curve I am happy to report that it is quite possible to change and be very happy with your newly acquired different brand ‘kit.’
It has been good to learn new ways of doing things with the new equipment showing all sorts of new tricks to achieve things; it has also shown us how reliable and steadfast our existing fleet of Yamaha machines has been and I will never underestimate the advantage of placing a machine in a line and starting production a few hours later, literally no longer than one day.
Let there be hope
The new Universal line has given Microtronix a huge jump in capacity and has taken a load off the small, more versatile lines, allowing us to turn small runs around faster and cope with very large runs even more efficiently, and of course giving Microtronix a sporting good chance at being able to produce a portion of the pending, new and exciting, wonderful, industry changing . . . yes wait for it . . . SET-TOP BOXES.
Yes, the elusive new contracts for digital TV boxes that we have all been waiting for for the past two years are finally on our doorstep. I spoke earlier on about a recession and the hope of any good times ahead being pretty doubtful, however we must really take our hats off to the government for its attempt at boosting the electronics industry, by way of insisting that the 8-10 million set-top boxes be produced locally.
If the DOC and involved parties can finally get through all the red tape and decide on a format and security system and issue the final tender, it really will make a big difference to our industry. I have loosely calculated that in order to deliver eight million boxes in the space of one year, our industry will have to place more than four billion components in a year, 333 million components in a month, 16 million components a day or, finally, two million components per hour.
So when I hear of someone saying I have, or we have, or a particular organisation has been awarded the ‘set-top box contract’ I can only smile and wonder where they just got the biggest and fastest factory ever in SA, overnight.
No, I doubt any one organisation has any chance of producing any more than 25% of the required volumes on its own and I suspect that as an industry we will all have to stand together and pool as many of our resources as possible and produce the volumes required by constructive collaboration.
To produce or place two million parts per hour, consistently, every day, you would need at least double that number in theoretical capacity, therefore the industry must have at its disposal at least four million parts per hour capacity as a whole.
Assuming there are around 10 to 15 very big production lines capable of producing more than 60 000 parts/ per hour in the hands of five or six of the biggest players, and assuming they had nothing else to do (which is surely not the case), those larger companies may be able to handle around 50–60% of the required volumes at a push, leaving at least another 50% of the volumes to go to small lines and smaller factories.
By my calculations at least, another 100 production lines at best, also assuming they are standing idle!! And what about all our existing customers and the local requirements while the flood of boxes is being produced?
If the government manages to keep to its intentions and actually stops Chinese imports and does in fact order a large volume of set-top boxes from local industry, it will positively influence almost every production house in South Africa, no matter how small.
I think we should all be working together and partnering with smaller players who can offer services and capacity to the industry. I think it will create a huge amount of employment and boost the industry as a whole.
It is common knowledge, however, that even if these huge numbers come to fruition and real orders are placed on the SA electronics industry, it will be a temporary and short-lived high. I believe that foolish investment or over-investment in excess equipment now will lead to a massive downturn when the numbers are fulfilled and ultimately result in more casualties.
Therefore I believe we should all use the available capacity that lies existing in our industry wisely, and share the feast while it lasts to build long-term stability and sustainable employment levels for the years to come. It will be extremely positive to see some new black industrialists emerging in our industry as a result of this manufacturing opportunity and I look forward to seeing the final results of the tender.
Microtronix would like to encourage any customers, who are doing either high-volume production or small to medium production runs, to come and pay Microtronix a visit for a tour and possibly a competitive quote, as our production capabilities really have become ‘industrial’.