WKK's Hamed El-Abd on the Current State of China
In the world of real estate, the key term might be “location,” but in manufacturing today, it’s automation, automation, automation. I had the opportunity to interview WKK’s Hamed El-Abd at the recent HKPCA show, who discussed the company’s entry into the direct imaging market and how certain areas of the Chinese market are being flooded by a staggering amount of Chinese equipment manufacturers.
Barry Matties: Hamed, let’s begin with your impressions of the show.
Hamed El-Abd: To be quite honest, I was expecting less than what we have here because of the state of the economy, but I’m pleasantly surprised. It's not so much that people were here buying or wanting to buy, but people were here looking and seriously considering different technologies. What we've said all along for the last umpteen years is that it's all about automation now. For sure, if you look around this show at all of this equipment, there's a lot of automation. Even at our own booth we have automation. Customers are now saying if the machine is not automated, they don't want it in their factory. That message is loud and clear and it verifies everything that I've been talking about over the last few years.
Of course, there's a lot of concern about the cost of doing business in China and I think that the Chinese government got the message that they can't have everybody leaving the country and going somewhere else. They just can't do that. There are too many jobs at stake. When you look at certain areas, there are pockets of factories where things are dead. Things are really slowed up in a lot of places. I can tell you about a bustling mall in the Champing and Dongguan area but it’s a ghost town now. I was there and all the shops are closed.
Matties: Is part of that driven by the online purchasing that's happening in China?
El-Abd: Not so much. I don't think so. I think in this particular case the factories around it have closed up, and it has had a direct effect on it and the businesses have closed up. But a lot of people do shop online. I am actually surprised by how many Chinese are shopping online.
Matties: In this industry here, automation is the key. What's going to happen to all the employees? They're not all going to keep their jobs. I understand the service sector in China is growing substantially.
El-Abd: That's what I said two years ago, that we need to understand and have a plan for what we're going to do with all of these people. The government has no plan. If you talk to the senior professors at MIT they recognize that as automation improves and gets better, we must answer the question of what are we going to do with the people? It's something we have to talk about today, especially with regard to factory people. Let me tell you, when you've seen the Whelen plant, an entire multilayer factory that can be run with 12 people, what do you do with all these other people? That's two shifts. So what are you going to do?
We need to be thinking about that today. As a businessman, I know that most business people in China don't care about that problem. That's the last thing on their mind. What's on their mind is, "How do I automate the systems, how do I get the most for my clients and customers with good quality products? If I can get good quality production with less people, I'm making more money. I'm happy. I don't care." That's a government problem and the government doesn't even understand that, let alone see it. That's not just a China problem. That's going to be everybody's problem.
Matties: Turnover is a big issue in China as well.
El-Abd: Turnover is a very big issue. One of the subjects we were just talking about is the high turnover at companies like Foxconn. When they go to the Philippines, one of the big reasons is because of stability. There isn’t the turnover that exists in other places. I think, with all due respect to the Filipinos, they realize these are great opportunities for them and they want to stay and work. They don't want to go hopping. They're afraid if they hop, they will lose the job.
Matties: We know what the economy is doing now but what do you see in 2016? What is your feeling?
El-Abd: I think most people are expecting a better year because this year wasn't so good. I don't think we're going to have a great year. What I predict will happen is that first of all, January and February are tied to the holidays, with the Lunar New Year and everything.
In March through June we're going to see a little bit of an uptick where customers are going to be acquiring and purchasing things based on the fact that they haven't done anything in over a year and a half. There's a lot of new technology that they are looking at. I think that they will make some investments. Then you get into the summer months of July and August and I think that it will completely flatten out because of the election cycle for the U.S. People in the U.S. don't want to make any major investments until they know which horse is going to win this race and how they are going to benefit. There are going to be a lot of promises made to get voters to vote for them. Nothing is going to happen until after the election. Then I think 2017 is going to be a very good year.
Matties: 2017 is right around the corner. I understand that you're still expanding at WKK and building a new facility that's nearly complete?
El-Abd: It's nearly complete. We plan to open March 1.
Matties: What will be in that facility? Why did you need the extra space?
El-Abd: The majority of that facility is going to be for manufacture of our machinery equipment. We basically ran out of space so we're moving into this new plant. It will enable us to expand our manufacturing of equipment and there are three or four suppliers of ours who want to produce in China. We just don't have the space to do it.
Matties: That's not a typical distributor model, to be manufacturing as well.
El-Abd: We never intended to go into manufacturing of equipment but we're talking about China and these manufacturers are based in Europe or based in America and they cannot compete with the equipment. If you walk around the show, how much stuff is copies of equipment from other parts of the world? It's actually frightening. I just walked the show this morning and there are 20+ manual exposure machines. That's a shocking number. How much are they making? How much are they selling? Our market is not that big so there is going to have to be consolidation and a lot of people are going to go out of business. Our view is that we're going to offer a service to our suppliers to be able to make the equipment and keep them competitive and keep them in China.Matties: We were looking at the Multiline equipment this morning where you've attached automation to it. It doesn't matter what it is, they want to automate it. You're manufacturing the Multiline equipment?
El-Abd: Yes. We designed and built the automation equipment. Our customers that were visiting the machine and seeing it for the first time were so impressed. We had a client this morning say, "Boy if I had known you had that I would have invested in it.” Because he bought something that was 10 times the price to do what he wanted to do for what we were doing there.
Matties: The other thing I noticed in your booth was a direct imaging system. Tell me a little bit about that.
El-Abd: That's a new system and of course there's a lot of direct imaging on the market, and there's the DMD mirrors. There are the lasers, and then there are the LEDs. We’re working with a Canadian company to bring in this brand new technology. It's cutting edge, and the technology is different from everything else. It's going to be faster than everybody else's technology and more cost effective. It’s extremely inexpensive to operate. When you consider any machine needs to plug into a 3-phase, this thing will plug in 700 watts like you're using a hair dryer.
Matties: What sort of speed are you talking about for prints like that?
El-Abd: 300 panels per side in about 12 seconds. We've already tested it running at that speed. We can consistently do 20-micron line and space and we can go down to 15 easily. We've done 15 now, but we're going to stick to the 20-micron area for now.
Matties: There is obviously a large demand for direct imaging.
El-Abd: Yes. The market for direct imaging machines in China is just about 500 machines a year. We think that once we launch the machine in a few more weeks we will be a major player in this field. That's what we've been looking for. For sure, we will be a major player.
Matties: I think that 12 seconds is about equal to others, though there may only be one at that level at this point.
El-Abd: We think there are one or two, but the point is, from a customer perspective, you have to look at the whole package—cost of ownership, reliability of your actual imaging, how good is it, how good are the line walls and things like that. I think that when customers see what we have compared to others, the decision will be easy to make.
Matties: It's not just speed, it is also quality and results. Is there anything we should talk about that we're not covering yet?
El-Abd: I think the most important subject that is on everybody's mind today is: How fast and how much can you automate? I'm a broken record. I talk about it all the time because the bottom line is that the cost of business is too expensive in China today. The only way to remedy that is to automate. That's really the main subject. Of course, what worries me today is that so many companies here offer the same thing. It's like if I asked you, "How many car companies are there in China today making cars?" There are over 100. You can't sustain that. I think that over the next 8–10 years it’s going to shrink down to 20 companies. Plus the foreign companies. You can't have 100 Chinese car companies.
Matties: I didn't realize there were that many.
El-Abd: Most people don't.
Matties: I've also heard that there are a number of board facilities closing down in China, as well.
El-Abd: We see that too, because they can't compete. And you have a lot of the big boys that have multiple factories and then they're moth-balling a couple of their factories and running one or two because the demand coming from America and from Europe has really slowed down. When that demand comes back up, they can just turn on the factories.
Matties: Is there a used equipment market that's emerging here because of that? How does that blend into what you're doing?
El-Abd: Believe it or not, you can buy used equipment on Taobao. I was shocked when I first heard that because who the hell would go to Taobao to buy a pick-and-place machine or something. How do you know what you're getting? You don't understand what you're getting. You don't see it. You just buy it off the Internet.
Matties: Along these lines, 5–6 years ago, maybe a little longer, you were talking about the ability of the Chinese to manufacture equipment being world class. I think at that point you had an imaging unit that was really a showcase of what could be possible. Now what I'm hearing and seeing is Chinese equipment is being exported to places like the United States.
El-Abd: I think that Americans don't really understand Chinese equipment yet, and the Chinese, if they have a fault, it’s that they don't know how to market their equipment and they don't know how to take care of the equipment in the field. They need to understand that if you're going to go into the U.S. or European markets, you're going to have to have a service system so that engineers can repair, install and take care of the equipment. They don't understand that yet.
Matties: I see a lot of them just now going in and finding a distributor there and letting them handle it, but the appetite for Chinese equipment in America is growing. I saw Americans here sitting right where you are saying, "I want a Chinese etcher or a wet process."
El-Abd: Because a few years ago they couldn't compete and today they can. I don't know if you were aware, but General Motors is now exporting their Chinese-made Buicks to the United States for the first time. I talked about that like 8–9 years ago. The Americans said, "Are you crazy? No way in hell is that ever going to happen." And now? Now it's happening. The Chinese made car is as good if not better than the United States made car. It's a fraction of the price.
Matties: You probably know more about this than me, but it seems like the posturing between China and America has more tension than ever.
El-Abd: I think that on the outside there is tension but on the inside, everybody knows you can't really allow the tension to get out of control, like it has between Turkey and Russia. You can't let that get out of control. I think that China and the United States both know that they need each other and they must work together on all areas.
Matties: Military included.
El-Abd: Military included, and you cannot go and create serious tensions, not even in the South China Sea or anything because there's too much at risk. What would China do if the United States shut down their economic lifeline? It's a two-way street. You can't do that. We need each other. Plus, not to mention the amount of money that the Chinese are holding in U.S. banks. You're talking about a trillion dollars. Are they ready to take a hit like that? No. There's too much at stake. It's not going to happen.
Matties: You mentioned Whelen earlier, the lights-out factory. They’ve built a model saying that we can have manufacturing in America to compete against the Chinese or anywhere in the world.
El-Abd: My prediction is within 10 years, that's going to be the model for all manufacturing worldwide because you will have factories in China that will be the same. You'll have factories in America and in Europe all producing for the local markets and keeping these enormous transportation problems as low as possible.
Matties: Yes, because the transport is really a big issue.
El-Abd: It's a huge issue.
Matties: That’s a lot of added expense to the end consumer. It's truly interesting to see these models. I think we're in an interesting time and a transitional period. There is a generational shift that's happening in China where people growing up don't want factory jobs. They want different kinds of jobs. There's job hopping, there's wage pressures, and there's the social aspect.
El-Abd: As crazy as it is, it's hard to find good workers in China. Isn't that nuts when you have a billion and a half people and you can't find good workers?
Matties: They're educated too. They're coming out of university with multiple degrees.
El-Abd: But they can't find the decent jobs today. I mean, you come out of the university, and you're working in a hotel. They don't really want that but that's what they've got. Then they go home. That's something that never used to happen. You would go to where the job is. Now you don't have to. You go home and you can stay and have a reasonably good income in your hometown and close to your family.
Matties: It's more desirable. It'll be interesting to see the long-term effects on the desire for education because they don't have to be holding two degrees to go work at that hotel, per se.
El-Abd: Keep in mind how many Chinese are being educated overseas or in the United States for that matter, at the major universities, too.
Matties: The goal for the United States is to keep them in the United States once they obtain that education.
El-Abd: A lot of them are staying, but China wants them back. They’re saying, we'll make sure we get you back. Here's a little perk to get you to come back and they're being offered very good jobs to come back.
Matties: I was at the printed electronics show in San Jose recently and there was an Israeli company with a box, roughly 3 ft. x 4 ft., which was outputting completed prototype boards. They're using what he was calling FR-4 silver ink, no drilling, everything is just placed where you need it. To me, it felt like what I was looking at was the birth of the future. When you look at all the direct imaging and all these technologies, it seems like there's a point in time where it all merges together.
El-Abd: I think that the future is yet to be written in our industry, but the future is moving very rapidly to all kinds of different new boards, and maybe in the future we won't even have boards. Maybe everything goes on a couple components, I don't know. A lot of things are going to change but it's still a ways away. But if you go back 30 years, where were we?
Matties: That's the interesting thing; 30 years ago the boards looked pretty much the same as they do today. What's changed in 30 years is the way we produce them, but the boards look the same. Now, what we're seeing is a shift in the way the boards actually look.
El-Abd: Like 3D printing. So much stuff is going to be done by 3D printing. You'll be 3D printing a house. The Chinese 3D printed a five story building here. It was completely 3D printed.
Matties: That must have been a big printer.
El-Abd: A fully functional five story building and it was built by the company that makes the 3D printer, which was this humongous system and they were showing everybody they could do this. And they did. Those are game changers. You could go and print the building or print the house or whatever very quickly, including the electrical works, the plumbing and everything else.
Matties: Hamed, it's been great to catch up with you.
El-Abd: Thank you very much.