CompoundSemi Online - The Original Compound Semiconductor Industry Newspaper

July 19, 2006...Most people who go into the businesses we cover in these pages, businesses that include the use or development of compound semiconductors in general and advanced LED-based lighting products in particular, face the choice of teaming with a contract manufacturer as they move into volume production of their products, or they bite the bullet and manufacture their product themselves. That choice isn't always an easy one.

The most important thing to keep in mind when you evolve your company to this stage, is that you're not the first to face that juncture. The process of finding a competent, trustworthy manufacturing partner isn't an easy one. Everyone has horror stories of contract manufacturers (CMs) ripping off your designs and selling them on the open market as their own. Then again, lots of people have success stories of happily wedded companies up and down the supply chain who went on to mutual fame and success. Good reps, good distributors, and good CMs are what can make a company. The flip side is also true. Associations that prove to not be good can break a company.

After way-too-many years championing the technology, two of my favorite compound semi device-types are "rapidly" gaining international notoriety, namely multijunction solar cells and advanced LEDs. With my many years in the industry, I often get inquiries as to who I'd recommend as a contract manufacturer to take a company's newly developed product to volume production, and ultimately, to the general market. Rather than recommend a particular CM, which I can't do because I really haven't had any direct experience working with any of them, I take the inquirer through a chat about what stage his or her company is in to date and quiz them a bit on their aspirations. It makes for an interesting and often vibrant discussion.

Recently, I had an inquiry from the president of a relatively new entry to the SSL industry looking for a CM. We had a good chat, during which I asked him, "If you're so concerned about protecting your IP, why don't you simply manufacture your product yourself?" Back in the good old days in Silicon Valley in California, many many entrepreneurial companies, when facing that juncture, elected to do their own manufacturing. (I know. I was there). They didn't even have to think long about it. The name of said companies that come to mind from the 1970s original semiconductor boom time were, among others: Intel, Apple, and AMD. The pattern back then was to keep all sensitive lines under ones own roof as long as possible, and transition only a seasoned, well-established line off to a CM when the novelty wore off manufacturing the line "at home." In the case of semiconductors in SiValley, "old lines" when offshore, and pilot lines and early stage products stayed at home. It was a no-brainer then and remains a no-brainer now.

For the last few years here in the USA, we hear all sorts of rabble and outcry about "outsourcing." CNN's Lou Dobbs is the most publicly vocal of the outcryers. Lou Dobbs Tonight is a very popular television business show in the USA. He did a feature on Rubicon (ref: July 2004 coverage) that underscored the outstanding job Rubicon was doing with their manufacturing of their sapphire substrates in Franklin Park, Illinois (outside Chicago). Beneath the outcry is a worthy notion, one that was well proven in those pioneer days in SiValley. Why not keep the manufacturing right in your own home town, and grow your business while employing local citizens? That's what Nichia did from its start right after WW II. The primary and publicly stated goal of Nichia's original founder was to employ its local people. I believe Rubicon's is too. It's surprisingly easy to be a world-class player right from your own backyard.

Home-based manufacturing is especially feasible when the product doesn't require high end cleanrooms. As our advanced CS and SSL industries move rapidly into the production of new end products that include CS and SSL parts as their key ingredient, especially advanced sensors, multijunction solar cells and LEDs for solid state lighting, why not set up your own manufacturing and train and employ local workers to produce a quality end product? Solid state lighting fixtures are especially ripe for this strategy. Most of the so-called leaders in the field are really made up of a handful of locally employed people. Most aren't even at the CM-worthy stage.

If you've been led to believe your local area doesn't have either the facilities or talent required, widen your scope. If you're based in a sophisticated large city, look outward to the surrounding suburbs and rural areas. You'll likely find small towns or villages eager to share your vision. And usually there's a bank or two in the small town ready to help you get things rolling. Then there's the realtors and city councils who know the labor force, etc.... It isn't that hard to get the ball rolling once you've honed in on a prospective little town.

The end products that we're dealing with in solid state lighting fixtures for the general lighting market are rapidly moving towards the type designs that can be produced by buying almost all the parts needed out of catalogs, or online. They're not that different from a booming manufacturing plant in the small town nearest our ranch, called Brady, Texas. The privately-owned company, called Loadcraft Industries, makes custom rigs and trailers for the international oil industry. The company was founded and is run by a former local area high school chemistry teacher (who therefore would understand the periodic table of elements and even know what our Group III Nitrides, GaAs, InP, etc. are!)

Loadcraft's contracts reach all over the world. They're currently enjoying a huge backlog and employ over 300 people from our rural countryside, which is just 2.5 hours drive from either Austin, Dallas or San Antonio. The employees work at everything from design and engineering, buying parts and expediting to total fabrication. From the employers and investors standpoint, local wages in an area like ours are lower than metro areas, but so is the overall cost of living, and Brady's banks are welcoming and competent. In fact, it was the local bank that original recruited Loadcraft. Not that you need to open up shop in Brady, personally, we like it small, although an influx of SSL fixture manufacturing might lead to better restaurants and entertainment), I use it merely as an example. There are lots and lots of Brady's out there, all over the world. Anan, Japan where Nichia got its start probably resembled Brady, Texas when that now famous blue spectrum LED company got started in phosphers.

Training local people to produce your designs isn't that hard. People are smart. They learn. They work hard and work well, especially when they're provided a good work environment and paid a reasonable wage. They work even better when, as at Loadcraft, they have state of the art tools, good benefits, and profit sharing. When your manufacturing plant is geographically near your "corporate headquarters"... even if you don't pull up stakes and move from the city to the small town yourself, you get rewarded in many ways, like not having to hop on a plane to travel half way across the world to be sure things are going right. And as a bonus, you get to take a nice leisurely car ride out in the country to check on how things are going. You'll be surprised how restful and relaxing that can be.

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