Electronics adhesives manufacturing executives speak out on issues facing electronics manufacturing and the future of adhesives for electronics. Participating in the roundtable are Kären Olson, president/CEO of Adhesives Research Inc.; Jesse Singh, vice president, 3M Electronics Markets Materials Division; and Patrick Trippel, president, Electronics group of Henkel.

A key electronics industry driver is the convergence of functionalities in portable devices, such as mobile phones with multiple functions.

Kären Olson

The Future

What are your predictions for the future of electronics applications?

Olson: A key electronics industry driver is the convergence of functionalities in portable devices. Examples include mobile phones with phone, computing, camera, and even MP3 capabilities bundled together. This trend has the impact of increasing the demand for EMI shielding, thermal management and electrical interconnection solutions.

Another driver is the trend to thinner, lighter and more flexible displays, creating a need to explore non-traditional assembly materials, including assembly and optically clear bonding adhesives.

Within the hard disk drive industry, there will be a continued need for electronically clean adhesives and non-silicone release liners, two technologies of which our company is a leading producer.

Jesse Singh
Singh:Smaller, cheaper, hotter and used in tougher environments. Manufacturers will rely upon leading materials suppliers for innovative solutions to address these challenges. Devices will increasingly need to serve multiple functions and circuit density will continue to rise. Demand for innovative aesthetics and customizable designs are other major trends upon which the industry will be focusing.

Major manufacturers are developing enabling adhesive and tape technologies that can stand up to the high temperatures of today's electronics, replace mechanical fasteners to make designs more durable and attractive, help eliminate steps in product development, enable better process control, respond to the move toward lead-free processes, and provide new dispensing options.

Patrick Trippel
Trippel:I think we'll see a continued proliferation of electronics across many different applications, as well as the addition of some new applications, which certainly makes for a very bright future for electronics. Products that historically haven't had a high electronic content will begin to incorporate electronics as a larger portion of their composition. Take the automotive market, for example: Currently less than 7% of automotive content is electronic, but within the next 10 years over 20% of the material composition will be electronic. As a major materials supplier to the automotive industry, this bodes very well for Henkel's business - we are very optimistic about the future of electronics applications.

Portable devices are one of the greatest opportunities for growth in the electronics market.
Where do you see the greatest opportunities for growth in electronics end-use markets?

Olson: Displays (including large displays), portable devices (cell phones with added functionality), MP3 players, iPods and RFID tags. These will drive opportunities for EMI shielding, thermally conductive, electrically conductive technologies, optically clear bonding systems and functional sealing technologies.

Singh: The growth in the electronics market will continue to be driven by innovative consumer devices, such as mobile phones and TVs. To support this, global presence and leadership in materials technology is an absolute requirement. Solutions that address market trends, while helping customers speed time-to-market, improve efficiencies and reduce total cost of ownership, are other requirements. 3M is doing this through a team of application development engineers who work one-on-one to solve customer problems and address key industry concerns. Additionally, 3M will strive to continue to be an industry leader in developing innovative adhesive and tape solutions for sophisticated applications.

Trippel: Henkel is focused on several markets that we view as high growth areas. We are extremely well entrenched in the computer and telecom markets, which together account for nearly 60% of electronic production and where several of our brands are delivering next-generation materials solutions for the latest wireless products. The automotive market is another segment where Henkel sees high growth potential and where we're investing significant resources in a market we see as very dynamic.

Do you see an increase or continuation in offshoring?

Olson: We see a continuation of multi-national electronics OEMS who have global operations in three continents - North America, Europe and Asia. This requires suppliers like Adhesives Research to be able to support North American, European and Asian design centers as well as their manufacturing arms in those regions.

Singh: There's no market in the world that's quite as global as electronics. Global markets are where the demand exists and where products are produced. Products will continue to be designed, produced and consumed on a global basis. We need to do business where our customers do business. Our approach to international business has been consistent since we established our first international operations in the early 1940s. We establish operations and relationships that will help us serve our customers in the most effective manner, no matter where they are located.

Trippel: Yes, we do believe there will be a continuation in production offshoring. China is clearly still the largest market and, as a supplier to customers in China, Henkel is committed to supporting that market with local resources. The electronics group of Henkel already has one production facility in China, and we're in the process of building a second facility to support and supply the local market. China has been the hottest global market for our products for the past 10 years and we don't envision that changing in the near term.

As far as other regions are concerned, the market in Mexico has realized substantial manufacturing growth over the last six to 12 months, and Central Eastern Europe has also had a fairly high level of activity. Henkel's business in both of these regions is very solid.

Industry Consolidation/M&As

How is consolidation/merger and acquisition affecting your business? Will this activity increase?

Olson: As an independent designer, developer and manufacturer of custom pressure-sensitive adhesives, tapes, coatings, and films, Adhesives Research is not affected by industry consolidation. Our customers desire a supplier who is focused on custom product development.

Singh: 3M already has a very broad portfolio of solutions to support our customers' needs. In addition to our own broad technology base, 3M has a continuing strategy of making business arrangements that will help us serve our customers better. There are many routes these strategies can take and we're actively considering all of them. This is especially important in the global electronics marketplace.

Trippel: Consolidation among our customer base will continue as manufacturers try to expand their global footprint. From Henkel's perspective, this consolidation is very positive, as we have a strong position in all three major markets and are well equipped to provide superior customer support on a global scale.

In terms of Henkel's business model, growth by acquisition has been very successful for us. Our core brands were all acquisitions and are now working beautifully together to provide complete, across-the-board materials solutions for the semiconductor and printed circuit board markets. Henkel is always interested in opportunities that would improve our global position or further enhance our product range.

What challenges does your company face? What is being done to address these issues?

Olson: As a privately held company, with more limited resources than our multi-billion-dollar competitors, we work very hard to ensure that we are well known in the electronics industry.

Singh: Our customers expect us to solve their problems and to continue to make them more competitive. We've got a history and an active strategy of doing just that. Our global reach and commitment to the industry, along with our technology leadership, are our best advantages in achieving our strategies.

Price Increases

How are raw-material price increases affecting product development and your bottom line? Will this activity continue through 2005?

Olson: We are indeed affected by a pricing dichotomy. The electronics industry is a very competitive market. Electronics OEMs require maximum cost effectiveness from their suppliers, and occasionally price rollbacks. At the same time, our raw materials suppliers are passing on significant price increases.

Singh: The industry is going through a cycle of raw material increases and, in certain cases, a more limited supply of them. The most visible components are oil and energy, but supply issues extend beyond just energy. 3M's global reach and ability to serve our customers in the most effective ways is a key competitive advantage in this current environment. We're managing our sources of supply on a global basis. We continue to use initiatives such as Six Sigma to drive cost out of our own and our customers' processes while adding more value. 3M has an incredibly rich assortment of more than 30 core technologies and R&D investments that will enable us to stay at the forefront of materials developments to serve the electronics industry.

Trippel: The biggest challenge facing Henkel - and all materials suppliers, for that matter - is raw material price increases, and we believe that this challenge will continue into 2005, though not at 2004 levels. Henkel will build a certain percentage of the increases into our material end product pricing, but we do not plan to pass on all of that to our customers. So, as we see it, there are two ways to address the issue and still maintain historical margins. First, Henkel is developing superior materials technology that sets us apart from the competition and provides a level of innovation for which customers are willing to pay a premium. Second, we are running more efficient, streamlined manufacturing operations. Henkel is confident that the procedures we have put in place will enable our core brand products to maintain their leading market positions and remain highly competitive.