TTM President Thomas Edman on the Global PCB Market, Technology, and More
The TTM and Viasystems merger put the PCB industry on notice last year when it created one of the biggest powerhouses in the world. At this year’s HKPCA and IPC show, Barry Matties met with TTM Technologies President and Chief Executive Officer, Thomas Edman to get his views on the market, technology, the culture of TTM and even the Trump effect.
Barry Matties: Thomas, please start with an overview view of TTM for our readers.
Thomas Edman: We are now the largest manufacturer of rigid printed circuit boards in the world and the second largest overall, and that's mainly due to the acquisition of Viasystems, which nearly doubled the company's size to about $2.5 billion in revenue. We have 25 production facilities worldwide, three of which are smaller assembly operations, and the rest focus on manufacturing printed circuit boards.
Matties: Great, how do you look at the markets?
Edman: When TTM looks at the markets we serve, we're very focused on what our end-markets are requiring and what our customers are requiring. If you look at technology trends in the industry today, a lot of focus is on miniaturization and really shrinking down the space and improving information content. A lot of emphasis is on speed, and sensing applications are becoming more critical as well, certainly in the automotive space.
So as we look at process technologies that we need to bring in, we're focused on reducing lines and spacing. That's a regular cadence of improvements that we're involved with. We're also very focused on continuing to improve our RF processing capability, both in the U.S. and Asia. Asia primarily for automotive and U.S. primarily for aerospace and defense.
Matties: Do you see different challenges between the regions?
Edman Of course, there are slight differences between the regions, but they deal with the same trends. Rather than regions, you see greater differences between end markets. Overall, if you look at the industry, there is a push that starts with the smartphone area. There has been a lot of advancement in technology requirements coming from that end-market with a very rapid pace of development and very short product life cycles. So this area drives the pace of our technology development. Over time these developments into our other markets such as automotive, networking communications and aerospace and defense.
Matties: When you look at challenges in the process, what about the actual manufacturing technology? We're seeing a lot more automation here and in China. Obviously there was a lot of labor thrown at manufacturing but now that's all changing.
Edman: That's absolutely right.
Matties: How has that impacted TTM?
Edman: Very similarly. As we look at our capital allocation, about four to five percent of our revenue is spent in capex, and as we look at that capex split, about a third of that capex will be spent on maintaining our factories including spending to meet environmental requirements in our facilities. About a third of it is going to be on capacity requirements, and then about a third will be spent on technology requirements.
If you look at that third piece that's where we're going to be driving process developments, some of which require automation.
Matties: When you look at the technology in the circuit board fabrication process, what do you think is the area that shops should really focus on? Areas with the greatest return?
Edman: I think there are big challenges around registration and so we're spending money on improving our registration capability. Plating technology always is an area of process development focus for us. Then I would say material characterization and material qualification, which is not core to the manufacturing process but is an important area where we bring value to our customers.
Matties: When you look at delivering a board on-time to spec, is that just the ante to play the game?
Edman: Yes, but due to increasing complexity of boards combined with shortened product cycles, makes it a challenge for many except for a handful of suppliers. We, as a supplier, need to provide a high quality printed circuit board at a competitive price, and to stay on the technology treadmill to improve our boards. But it's the areas around the printed circuit board where we can also add value to the customer.
Matties: The self-awareness to do that, too—you don't always see that.
Edman: It's critical for us and for our business model. We have to be able to provide value to our customers up front. When our customers’ engineers are starting their design and looking at their design requirements, we want to engage so that we can add value to that process. This means interacting early at the engineering level and during material qualification. We have the capability to provide this service out of both our North American and China operations. This allows our customers the option of ordering their prototypes out of the region that best meets their needs. We're doing the quick turns and NPI work, helping them to scale to the pilot manufacturing stage, no matter where this needs to be done, and then we're able to transition into volume production in Asia. For us, that's the value proposition.
Matties: It's a value proposition that carries all the way through from engineering to volume.
Edman: Through to volume, and for our customers, we're trying to meet the customer's needs whether they're the engineer who is up front in that process or the sourcing organization so that the engineer knows that they can source from TTM and that the sourcing organization is comfortable with the eventual ability to carry that product through to volume with TTM.
Matties: As we know, a lot of OEMs come in and say “we want this particular material,” but if they're coming to TTM, are you saying that they are surrendering some of that thought process to you?
Edman: That's correct. Of course we partner with the laminate suppliers as well, and the goal is to be able to provide value to the customer as they make that decision. Now, the customer is going to do their own evaluation and then there's a sharing of data that goes on. We compare data and then the customer makes a decision on what laminate they're going to go with. But certainly our goal is to be part of that decision, because the worst thing that happens to us as a printed circuit board manufacturer is when that decision gets handed to us and we are asked to process an unfamiliar material.
Matties: Is the reason OEMs went to the laminate suppliers because there was a void of knowledge from the fabricators to begin with?
Edman: I think that may have been part of the historical reason.
Matties: There's a marketing side to it as well.
Edman: If you're a laminate provider, it's in your interest to also go around the fabricator and be able to influence the buying decision of the OEM which is similar to our work with our EMS customers. We have excellent relationships with our EMS customers, but we work directly with the OEMs so that they are spec'ing in our PCB as we ship to the EMS customers.
Matties: I think your approach is so smart because what you're saying is, if I'm getting it right, the OEM places higher value on your opinion because you control the manufacturing and you built this process where you know all the components are compatible, whether it's the laminate, the mask or whatever it happens to be.
Edman: That's right, and again, it's all about value. At the end of the day, our OEM customers may not pay us more for that board, but we are part of their thinking process, and this strengthens the relationship. This is why TTM and Viasystems felt it was important to bring our two companies together. Together we provide very strong assurance to our customers that we are a “safe bet” due to the size and the scale of TTM as a supplier.
Matties: So, with 30,000 employees, how do you manage the culture to be aligned?
Edman: It’s absolutely critical, and a lot of communication is a big part of it.
Matties: I would think that would be the most challenging part of a leader's job.
Edman: I was very fortunate. I inherited a culture at TTM that is very much about how we as a company provide value to the customer. It's also about the fact that, at the end of the day, we build printed circuit boards, and that's our mission. So there's not a lot of fluff in the organization. We're very focused on honest, regular communication with our employees, making sure that they are communicated with, that they understand the direction of the company, and that they understand and trust management to run the company in a manner which is consistent with our core mission. We are really focused on execution on behalf of our customers.
And so, our communications are regular. We communicate with our employees on a quarterly basis. In our plants we're communicating with them on a daily basis, but with our management team we have a regular quarterly communication process that we work through globally. I personally visit each of our plants twice a year so I'll get to half of them each quarter, and our executive team visits the other half every quarter. This process ensures that we're always in front of our employees and our key management in the plants understand our direction, and are positioned to communicate effectively with our operators.
Matties: What's a typical visit to a factory like for you?
Edman: Typically we'll have about a two or two and a half hour communication meeting. Sometimes, depending on how many questions we have, we'll just keep going all morning or all afternoon, depending on the situation. But at least a two-hour communication meeting and a lot of interaction with our management teams in the plants, and then from there what I like to do is walk the floor and observe any changes since my last visit and see how things are going.
Matties: I think that's really good and probably very enlightening and meaningful.
Edman: It's very meaningful for me.
Matties: Yeah, because you're really walking through the veins of your organization.
Edman: There's no substitute for that, for hearing how things are actually going. Particularly the larger we've gotten, the more important it is to be able to feel the pulse of the organization. It's another reason why we also feel very strongly about making sure that we're in front of our major customers on a regular basis and that we're also dealing with our vendors on a regular basis. That we are truly partnering with both sides.
Matties: What's the most challenging or difficult part of your job?
Edman: My responsibility is to develop a strategy for the company and then help the company move in that direction, and that is enabled by a strong team. You put a strong team of people around the CEO and it makes that job a lot easier. I think we have the best team in the industry bar none, and that team makes things happen inside of the organization. They're all tremendous. If you look at our executive team and you look through our management ranks, we really are a combination of two great organizations in terms of Viasystems and TTM and what we've brought together.
Matties: A powerhouse.
Edman: They make it work and I think the executive team and how they work together is a model for how the rest of the organization needs to work together.
Matties: How do you keep growing? More acquisitions? What's your strategy there?
Edman: We have organic opportunities for growth, for revenue growth. We spend a lot of time on automotive and on improving our position there. Aerospace and defense right now is in a good position. After several years of challenges, we're now seeing orders come through and are continuing to see growth opportunities there. We continue to invest in technology. So down the road, as we look at acquisitions, they probably won't be opportunities to double the size of the company. They will be much more about how we can add value to the customer proposition.
Matties: Let's talk politics just a little, and the Trump effect. You mentioned military and equipment. What do you think the Trump effect will have on your business?
Edman: I think it's really too early to say. You know, we're all learning. I think to the extent that investors asked that question prior to the election, we answered that with either candidate, we were encouraged about the potential aerospace and defense environment that would come post-election. I believe that the positive environment we see today will carry on into the next year as Trump comes into the presidency. On the other hand, I am monitoring any potential trade impacts. Global trade has always been a personal priority to me and I'm watching the potential effect of trade tensions on our customers.
I believe the relationship between the U.S. and China, as with all of our critical trading partners, is much too important to mess with. That's a relationship that needs to be built, not torn down.
Matties: So you're in California and you see a lot of what's going on with immigration policies. There's so much uncertainty right now, are your customers asking questions or at least concerned and coming to you to seek guidance?
Edman: Most of our customers are in a wait and see mode. I think that's the general view. Much of what is said on the campaign trail and what happens after the election are very different. The rhetoric has been incredible here so I think generally the view is to wait and see how things develop. I do know that our aerospace and defense customers are generally encouraged, but as I said, they would have been either way.
Matties: A couple of last thoughts here. What advice would you give a buyer of circuit boards today?
Edman: Well, it would be self-serving but I do believe in it. I think our customers should look for a cradle-to-grave solution and fully understand where the PCB stands in their bill of materials. If you look at our customers, the PCB is an important element of their bill of materials. So I would suggest that they be thoughtful about their selection of printed circuit board suppliers. Look to a supplier that will add value to their total offering to their own customers.
If you look at our industry and the kinds of changes that our customers are experiencing on the hardware side, it's unbelievable what is going on out there. Given the rapid pace of change coupled with cost pressures, our customers have to make sure that they are partnering with the right supplier and that's what we're determined to be—that right supplier.
Matties: What do you enjoy the most about your job?
Edman: The people. No question. We have a great organization, a global organization, and I enjoy working with them.
Matties: You mentioned that your role was around strategy. What is the strategy?
Edman: At TTM, we have a strategy built around market diversification and we really like our position in terms of our end market exposure. We focus on adding value, which I’ve touched on, to our customers and that is very important to us. Those are two major aspects, and the third is focusing on growth and where we can bring growth to the organization. Automotive and aerospace/defense are the two areas right now we are very focused on. So you take those as the three pillars of the strategy that we're asking our employees to deliver on.
Matties: Good. Any thoughts you've had that we haven't covered here that you would like to share?
Edman: This is the first time that I have attended this show and it's tremendous. The energy here is great and to see the kind of attendance and the number of companies exhibiting here is pretty impressive.
Matties: Lots of equipment and lots of energy around this show for sure. It just keeps growing and growing, it's crazy how fast this show is growing. Tom, I really appreciate you taking the time out to meet with us and do this interview.
Edman: Of course. Great questions, thank you.