Update on defense-industrial-base crucial sector

The recent National Defense Industrial Strategy highlighted the erosion of U.S. industry’s capacity for making things, which includes printed circuit boards (PCB) at the complex end of electronics. Such boards are the types of parts needed for advanced weapons systems or artificial intelligence processing. Now there are signs the domestic PCB industry is awakening. For a rundown on recent developments, the Federal Drive with Tom Temin had an in-studio conversation with the Executive Director of the Printed Circuit Board Association of America, David Schild.

Interview Transcript: 

Tom Temin Safe to say that these boards we’re talking about, we make the simple ones maybe here, but the complex ones have moved offshore and maybe come back with U.S. circuits on them, but they don’t originate here, and that’s changing.

David Schild You know, the majority of the global printed circuit board market has moved over the last three decades to Asia. About 90% of the world’s boards are made there. About 56% of the world’s boards are made in mainland China. We invented PCBs in the United States, as we did semiconductors, but we’ve lost the manufacturing capacity and leadership that we once had. High end boards that you would find in aerospace and defense applications are still made here in the United States very often because it’s required so by the Department of Defense.

Tom Temin And what about other parts of the high-end industry, say, like I mentioned, artificial intelligence processing of intense GPU chips and so forth, which end up in big data farms here? Are those circuit boards from here?

David Schild Some might be, as you mentioned, the recent national industrial base study highlights are dependency on foreign sourcing for critical microelectronics, and the fact that so many of our complex defense and aerospace systems depend on these technologies. We made a significant investment time with the Chips act, a $52 billion down payment on semiconductors. We need to think about the rest of the technology stack the integrated circuits, substrates and print circuit boards that support those microchips. And we need to have a whole ecosystem approach so that we’re not simply sending things back and forth across oceans and not building secure and resilient supply chains.

Tom Temin Now, the Pentagon did give a big award recently. Tell us more about that to a domestic company for complex boards. Which arm force made that and who did it go to?

David Schild Yeah. Two years ago, the president invoked the Defense Production Act and designated microelectronics, specifically PCBs and integrated circuit substrates, as a critical national technology. What that does is give the Pentagon a sort of hunting license to spend and invest in those technologies. The DPAI awards recently were to Calumet Electronics and Green Sauce LLC. Those boards will end up in high end defense applications. It was about $85 million. That’s a good start. But of course, we need to do more through the Pentagon and the DPAI authority.

Tom Temin And do we also, though, need to build up U.S. capacity for non-defense for the dual use idea? Because that’s an economic incentive, because the Defense Department is not the majority volume buyer of complex boards. You know, our homes and cars are filled with multilayer boards with really complex circuits on them.

David Schild That’s absolutely right. Only about 4% of the global market is aerospace and defense. And so, anything that you use today that really runs on electricity is going to have a PCB inside of it. The majority of those boards, from dishwashers to garage doors, are still made overseas. And what many people don’t realize is that once we’re outside of the defense market, critical infrastructure applications, think banking, think the power grid, think medical devices. Many of those microelectronics are entirely sourced from foreign countries. I think that’s an unhealthy and risky dependency.

Tom Temin And when the DoD does make an award like the one you mentioned to the two companies there, they run into the challenge that faces so many of the defense industrial base players in that is, they need steady demand signals from the Pentagon and not the stop and start, or will make these and then go away for 20 years, like we did with fighter planes and this kind of thing, so that companies have an incentive to keep those lines and that expertise going.

David Schild Absolutely. You know, this kind of manufacturing needs the steady demand signal that you talked about. It’s no different than making military engines, for example. We need to keep the talent on shore. We need to keep the facilities and the technology on shore, the capacity for surge, for the ability to ramp up when there might be a crisis. And we’ve seen recently what happens when the United States has to export large amounts of high-tech defense systems, the demand that that places on our existing domestic capacity, we absolutely have to have more of what we make and depend on, made here in America.

Tom Temin And we’re speaking with David Schild. He’s executive director of the Printed Circuit Board Association of America, and there has been some work in Congress recently on dependance on China and a lot of fronts, including one in the microelectronics area, which we already had some sanctions against already.

David Schild Yeah. The Select Committee on the Chinese Communist Party, led so well by Representatives Gallagher and Krishnamoorthi, recently released a list of 150 imperatives to maintain America’s technological leadership. Right at the top of the list was increasing our capacity for microelectronics manufacturing, including printed circuit boards and integrated circuit substrates.

Tom Temin Well, why did all these things leave the country in the first place?

David Schild Well, I think, you know, there’s been a love affair with offshoring and with chasing high margins and low costs by foreign manufacturing. I think we went a little bit overboard. What’s happened to the global portfolio when it comes to manufacturing? It’s become very unbalanced. And that’s why you hear so much referencing to friend shoring, bringing things closer to our shores, and of course, reshoring, bringing things back to United States. We saw during the Covid 19 pandemic what a reliance on one single point of manufacturing can mean to customers. And we see empty store shelves. We saw the inability to get pickup trucks, for example, because we were waiting on critical microelectronics. I don’t think anybody wants to wait on critical defense systems or on the things that power our everyday lives.

Tom Temin Well, if you look at California, and the Pentagon loves to talk about Silicon Valley, Silicon Valley, Silicon Valley. You hear this term and it’s not Silicon Valley, it’s Software Valley. It used to be Silicon Valley, but the fact is, making circuits and making circuit boards is chemistry. It’s water. It’s air products and different gases. It’s manufacturing and it has emissions, and it has water discharge. And it has a lot of expensive factories that need to be built in areas where you have huge degrees of regulation, very high labor costs beyond the Pentagon desire. There are structural issues in the United States.

David Schild Certainly. You make a great point, Tom, about our need to be competitive, not just at the federal but at the state level. And it reminds me that when manufacturing capacity goes overseas, we also lose intellectual knowhow. So often research and development is co-located with production, and we need to invent the next generation of printed circuit boards and substrates to go with the next generation of chips. They’re going to be made in places like New York, Ohio and Arizona.

Tom Temin Yes, you mentioned New York. There’s recently been some announcements that there’s going to be a new board manufacturing near Syracuse, New York. And New York is a state that has been losing jobs, losing population and losing industry for a long time. You know, light bulbs and everything all the way up the chain. And so, what happened in New York to cause someone to invest there for printed circuits?

David Schild Well, I think you see, in 26 states around the country, companies that are making printed circuit boards and integrated circuit substrates in New York, specifically, TTM technologies is making a significant investment in partnership with the state of New York to expand their capacity. And what I think is happening, Tom, is that states are looking at the sort of silicon gold rush that’s occurring in Arizona, that’s occurring in Texas, that’s occurring in Ohio. And they’re saying, how can we be a part of this manufacturing revolution, this reshoring? And New York seemed to have a little bit of vision there, and they’re willing to partner with TTM. So, we’re excited for that. And I don’t think they’ll be the last state to introduce incentives. People look to the federal government. That demand signal that the Chips act created, I think it’s going to be replicated at the state and local level.

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