Isola: Evolving with the Market
In this interview from productronica 2017, Isola’s Karl Stollenwerk discusses the decline of the laminate market in Europe over the past 17 years, current demands on raw materials, and Isola’s new strategy to remain competitive.
Barry Matties: Karl, how long have you been with Isola, and when did you become president?
Karl Stollenwerk: It's now 30 years ago that I started with Isola—1987. I started in sales and for many years I held a number of sales roles. In 2006 I became the MD of the Isola plant in Düren, Germany. In 2009, I took on the responsibility for the European operation of Isola. At that time, we had three plants, but following market trends, the European market in terms of base material for printed circuit boards has been shrinking the last 17 years.
Our booming year, 2000, was the last year we saw growth. After that, we just saw a reduction on the market side. Customers disappeared, market disappeared, suppliers disappeared and competitors disappeared. When I started in '87, there were 23 different laminators in Europe. Today, we have a couple. That’s a very short overview of the last 17 years.
Matties: But, you hit the high points, and the low points.
Stollenwerk: We were growing a lot during the ‘90s, and growing fast. At that time, we had six plants in Europe. Now we have just one. I think we were always following market trends, and trying hard to survive in a shrinking market. In the year 2000, the laminate market in Europe was 21 million square meters, and we did, at that time, 5.2 million square meters, only from the Düren plant. Today the market is 5.6 million, and we still have the capacity to do 5.2 million. That is reality.
Matties: It's a tough reality, isn't it?
Stollenwerk: Yes, that's true. But that is what I always tell my people. It's a tough world, but we are still there and successful.
Matties: With it being such a tough world, I know that there's been some management shifts, and new directions set for Isola. How is that playing in from your role? What's shifting, and what do you think the impact is?
Stollenwerk: I would say number one, as I said, the market in Europe has been shrinking for years and we had to adapt ourselves accordingly. We were able to adapt, and we are still doing all the base material that is needed, starting from the standard Tg material, up to the high-Tg and high-frequency product. The strategy is very simple; we are producing in all three regions, and Europe is just one of the three regions. We are doing OEM marketing in all three regions. In a lot of cases, we start here with low-volume, high-mix. Then when it comes to real high-volume, we have to accept that it goes in other regions, especially to the Asian region. That is one part of the new Isola that is focused to start where it is developed, and to follow the market and the needs immediately where they want to do the volume. That is what we are doing, not being scared about doing something, and then losing it later. That is business.
Matties: Well, you're doing it by strategy now, rather than reaction. That's the difference I'm taking away from my interviews with people at Isola.
Stollenwerk: Exactly, and that is also important for the people in the plant; they have to and will understand that this is part of the business model. Therefore, that is where the influence is coming for that new model and strategy.
Matties: The new model is driven by the loss of market, right?
Stollenwerk: Right.
Matties: We don't change until we feel pain. You guys were feeling some pain, and you made some changes.
Stollenwerk: Correct. The other strategy is coming from our new management; we want to produce in all three regions, which is also an important statement for people who are working in a shrinking market. And, we are also dedicated to do R&D in all three regions.
Matties: Because the needs are different. In Europe, aren’t there about 300 shops?
Stollenwerk: I would say about 230.
Matties: Are the needs in the North American and European market so terribly different?
Stollenwerk: I would say from the technology point of view, we have different market segments. We have a very strong automotive business here, which is 20% of the total European demand for base material. We have another 50%, which is industrial, low-volume, high-mix. We don't have a lot of sophisticated products like the high layer-count laminates for the servers. This is a typical U.S. market. That is the difference. In the U.S., the average layer count is 15, 20, or above. We don’t have that much layer count in average in Europe. That means we have a lot of thicker base material and even more rigid material than in the U.S. The other difference is that in U.S., the market starts with a Tg of 170. We instead start at 130. From the U.S. point of view, Europe is doing a lot of low-Tg stuff. We are saying it is the standard Tg. You can see already the difference. These are the differences, but what is similar is that post-markets in the U.S. and Europe have been shrinking over the years.
Matties: The other issue is cost, or selling price. You had to lower your selling price to really be competitive.
Stollenwerk: Yeah, we were able, over the years, to restructure in a positive way. Taking cost out and what is not needed. Providing good service in the way of short lead times.
Matties: Was that a difficult process to remove cost?
Stollenwerk: Yes, and it still is difficult.
Matties: Painful, I would think too.
Stollenwerk: In 2000, looking back on the 5.2 million square meter output, we were doing that with 1,050 people in Europe. We were doing it in a four-shift model with seven days, 24 hours. Today, we are running between five and six days, three shifts, with 320 people. If we were able to get the whole 5.2 million, then we would have to add a fourth shift. But, then we would do the 5.2 million with about 420 to 440 people.
Matties: So, it’s about 40%, or thereabouts, of what you had previously.
Stollenwerk: Right.
Matties: What were the greatest gains in efficiency that allowed you to do this?
Stollenwerk: A lot of internal logistics. The big change was to change the production logistic from make-to-store to make-to-order. Accept the low-volume, high mix, and be very flexible in that. We learned from the U.S., for example, the quick-turnaround business. We started to do quick-turn in 2010. Before that, we never did it. I think these were really major changes in our world, like, let's say, the lean activity over the years. The same comparison can be made in terms of used building space and area. In 2000, we were occupying 40,000 square meters of buildings. Today, it is exactly half, 20,000. That means we have reduced a lot of internal transportation. We have reduced a lot in terms of different machinery.
We were putting in Lean, and a one-piece flow wherever possible. We are doing a lot of automation in order to reduce labor costs further. The beauty, over the years, is that we were pushed to increase automation to reduce labor, just for cost reasons. In the meantime, automation has brought, in addition to much higher quality, much more stable quality. Companies in Asia, especially in China, have 20-25% changeover in terms of people, and we have a changeover of 1% or even less. That means that our people have knowledge, and the average of all our 320 employees is 21.5 years of service. A lot of people have been working here for many years, which means people have a lot of experience.
Matties: How are the customers reacting to the changes?
Stollenwerk: They were more focused on their market, and their problems, and their needs. So, in general, they are happy to see that we are still focused on the three regions. They're happy that in Europe we are really focused on being the number one, in terms of short lead times and providing a QTA service within 12 to 48 hours. Big turnarounds.
Matties: The lead time is still a big issue for some of the high-frequency work.
Stollenwerk: This year, the lead time was even more critical, because we have had some issues with copper foil availability. Last year, in the third quarter of 2016, we saw some issues in Asia with cost increases that we were not having here in Europe. We were able to keep the cost level up to end of 2016, which was also a good signal to our customers, and to all our markets, that we were reliable.
In November 2016, during electronica, we started to inform the market of price increases, and also some issues with availability. But we said, “Don't panic. Don't put too much in your inventory. Just let us know what you need, and you will get what you need.” We were then starting to run six days a week, not five days, so it meant 20% more volume. We were able to get the copper foil for this increased volume. We were serving the market when it came to the hot season, and we were able to achieve six days of output. This lasted for eight months, up to end of August; we were running six days a week, three shifts, without any issues of not having the cooper foil in general. In some cases, we didn't have the right copper foil at the right day. Therefore, the lead time was a little longer, but the customers weren't panicking too much.
Matties: There's a lot of concern about copper foil in the marketplace now. Other industries will consume it without such high standards, and it's favorable for a copper foil producer to sell it that way.
Stollenwerk: In my opinion, the copper foil market was also taking it in that direction. The people were more than nervous about it, and it worked in the way that they were increasing prices. Not just to LME (London Metal Exchange), which you can see on the stock exchange, but with their conversion cost. We also have to accept that the conversion cost of their margins were very low over the years. It was the reason that we lost copper foil suppliers in Europe.
Germany in 2014, was like 2009 in France. We had also to consider that if you have suppliers that are not earning money, sooner or later they will not survive. And 2017 was the year where the copper foil suppliers were using the new markets, and being a new market themselves, which is less demanding from a quality point of view, than from the electronic side. But, from our point of view, we were able to bring all the volume, so customers were not missing anything. They could produce what they wanted to produce.
That is the message, what we as a European supplier were able to bring. Looking to the future, I see it a little differently. The LME price is still going up a little bit, but I don't see a similar situation for 2018, in terms of shortages. Now, we are back to normal, but the continuous growth in E-mobility will for sure bring additional demand for ED copper foil.
Matties: Well, people are still talking about this. If there's going to be shortage, we're going to see price increases. That's still conversation, but you're saying you see it a bit differently.
Stollenwerk: From the price point of view, I would say there will be a price increase, but not a big one.
Matties: Not a 30% increase.
Stollenwerk: Not as we have had—for sure not, but it's more related to what's going on, on the LME. Here in Europe, it’s a little bit more complicated, because our supplier buys LME in dollars, and we buy the copper foil in Euros. That is a different additional advantage, or disadvantage. But, I would say, from the shortage point of view, it's gone. In Q4 2017, we didn't have any issues anymore. I would not see that this will come very quick again. On the other two raw material sectors, like glass cloth, we have also had issues. During Q1 and 2, 2017 there were some sort of shortages. Not as big as copper foil. But if the industry brings five furnaces at that same time into repairs, then there must be an inference. But we were not seeing the same issues then on the copper foil. What I see for the near future is that there will not be a big issue on that, in terms of availability, maybe here and there some price increases. But not in a real big number.
Matties: What sort of demands do your customers bring to you now?
Stollenwerk: The demand is much lower in Q3 and Q4 than in the first half of 2017. I would say at the end of the year, we would have an increase in volume of roughly 10%.
Andy Shaughnessy: Karl, how do the market segments break down for Europe, your side versus U.S.?
Stollenwerk: In Europe, 50% is industrial, 20% is automotive, then another 15% is health, and then medical. Then I would say the rest is in aerospace, and in other services. The military and aerospace market in the U.S. is much larger than in Europe.
Matties: A different scale.
Stollenwerk: Yes. What we are doing is working very closely with the European Space Agency. They are still looking for a local producer, and we are a local producer. It fits their strategy, and we are also doing well, so this could be for us also a certain growth. Since we were not so involved in the polyimide business in the past, we may be involved in the near future.
Matties: Is there anything that we haven't talked about that you feel like we should be sharing?
Stollenwerk: In terms of supporting the Isola strategy to produce in all regions, we are doing R&D in all regions as well. We have invested a lot of money in our R&D center in Düren since we had the very low changeover in terms of people. We have a lot of experience, and we want to use this experience for further developments. We have started to run the R&D, for example, in two shifts, which is uncommon. We are also adapting to reduce the time to market for these kinds of products, especially for the automotive world.
Matties: What drives your R&D?
Stollenwerk: First, we have very close connections to the OEMs here, especially to the automotive OEMs like Autoliv, Bosch, Continental, Hella and all the big guys. We are doing R&D for what they call the front edge, for what they believe they will need in three or five years. Then when it comes a little bit closer to their reality, we start again to do larger projects together. In terms of the high Tg, but high thermal reliable base material with thick copper cladding, thick copper will be for sure an issue, an important issue for E-mobility. Here, I think we are also showing our capability to make these R&D things here. To make the small series with products we have already from the varnish point of view, but putting things together with thick copper, including providing special high resin content bonding prepregs with specific flow characteristic’s that you need to close all these big gaps after etching.
I think these are major things where we are working on, on the R&D side, where we are running two shifts in order to make some new first samples very fast.
Matties: Karl, we certainly appreciate your time today. It's nice to catch up with you. Glad to hear things are going well.
Stollenwerk: Thank you very much for your time. It was nice to talk with you about how we see these things. We will work hard to continue in that way.
Matties: No doubt about that. Thank you.
Stollenwerk: Thank you.
