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Interview with Ray Bruce, head of the global SIPLACE CRM organization

May 11, 2010

Ray Bruce, head of the global SIPLACE CRM organization:

Ray Bruce, head of the global SIPLACE CRM organization: "The industry is still in a shock mode, but the upward trend is clearly visible and stable."

The signs of a recovery in electronics manufacturing are intensifying. For Ray Bruce, head of the global SIPLACE CRM organization, and his team, the goal is now to arrive at the right short-term and medium-term conclusions from the changes. Bruce also believes that manufacturers are now called upon to develop and support new production concepts.

Mr. Bruce, how are you feeling at the beginning of 2010?

Just like after a long and extreme roller coaster ride - after a steep decline we are now experiencing an equally steep rise.. After the start of China’s recovery in early 2009, the situation in Europe has been improving since mid-2009 as well. In concrete terms: in the fourth quarter of 2009, we were able to deliver almost three times more placement machines in China than in the comparable prior-year period. The monthly growth rates are currently exceeding 35 percent. We are also seeing significant growth in Europe again. The inquiries to our sales departments, which are an important leading indicator, doubled in the fourth quarter of 2009 compared to the same period in 2008.

The order entry is a clear indication that confidence in the market is growing. We have already seen a growth rate of 30% between January and February 2010. The latest figures for January up to including March show an increase of 400% compared to the numbers last year. In many regions, our volume for the current fiscal year exceeds the entire volume of 2008/2009, and we have more than six months to go. The industry is still in a shock mode, but the upward trend is clearly visible and stable.

SIPLACE restructured its operations and was split off from Siemens shortly before the crisis began. Didn't that pose an extra burden in difficult times?

to operate with much more flexibility and agility. For example, we built our new, highly flexible factory in Munich in the middle of the crisis and converted our entire supply chain management to state-of-the-art pull principles. Within the old structures, all of this would have taken much longer. Today we benefit from these fast decisions and their consequent implementations. The second example: Of course we cut our budgets and lowered our costs like everyone else, but at the same time we invested massively in developing new placement solutions. With the SIPLACE SX Series we were the only manufacturer that introduced a truly new placement platform in 2009. This decision was counter-cyclical, daring and somewhat controversial even in-house. We continue to benefit from the resources of the Siemens group, but we take advantage of our new freedom for the benefit of our customers and our company.

Do electronics manufacturers really need new machines at this time? Aren’t they more interested in saving money?

The two are not mutually exclusive. No electronics manufacturer believes that the old times will come back, but they need new concepts for the future. The answer to these challenges is called build-to-order, i.e. highly flexible and strictly order-oriented manufacturing concepts. Order volatility – even severe ups and downs – will be normal in the future. Only manufacturers who are able to keep their productivity high and their inventories and lead times low even with small lots and frequent product changeovers will be able to operate economically. This is where the SIPLACE SX enters the picture: its Capacity-on-Demand capabilities are the fundamental prerequisite for being able to implement modern BTO concepts on the SMT line. Thanks to the SX’s interchangeable gantries, the user is able to flexibly add, reduce or transfer performance between lines. Companies that don’t take advantage of these capabilities and continue to operate with rigid machine concepts will not save money, but lose it.

The market is confirming this trend. With our new machine platforms and innovative concepts we have the better solutions for today’s electronics manufacturers. That’s why we were able to significantly increase our market share in recent months.

BTO concepts are very comprehensive, but SIPLACE covers only a small part of the electronics production process. Why is your company so active in this field?

First of all, we believe that we have a responsibility to do this, because the placement

process handles material like no other process in the SMT production chain. This means that there is great potential for saving large amounts of costs. In addition, as our customers’ technology partner we believe it is one of our core duties to make them more competitive by implementing BTO concepts, and we can supply the corresponding innovations. We have already done a lot of the work with solutions for NPI process improvements, with flexible transport, setup and setup control concepts, as well as with developments in the traceability field. With the SIPLACE SX, we give our customers more options in adapting their placement performance and their feeder capacity. Capacity-on-Demand is the key to BTO.

We are also the innovation leader in another field. Consulting, software and services account

for a steadily increasing share of our sales. Our customers don't buy "naked" hardware – they want complete solutions that are well-thought-out and can be integrated into what they already have. Software products like SIPLACE LES or SIPLACE Facts or our SIPLACE OIB integration platform demonstrate that we are stronger and much more advanced than our competitors in this field.

But hardware, software and services are not everything. Suppliers who take BTO seriously must also be able to offer their customers new business models.

Are you referring to leading and other financing models?

Yes and no. Leasing and similar models provide a certain level of flexibility and are a fixed part of our financing options. BTO, however, is concerned with more than fees or payments that are fixed and stretched over time. A user who wants to practice BTO consistently wants to pay for his SMT lines based on their utilization.

With our SIPLACE SX we are the first equipment manufacturer who offers the option to order and deploy gantries as needed. The customer pays when the gantry is actually being used. Like with leasing, the gantries are not considered fixed assets, which makes the balance sheet look better. But unlike with leasing, there are no fixed fees; instead, the customer benefits from additional financial flexibility. If the order volume increases, SIPLACE simply provides additional gantries. And if the order volume drops for seasonal or economic reasons, we take them back. Thanks to SIPLACE, the electronics manufacturer can for the first time scale his line performance and costs in accordance with his order situation.

As you can see, with the right ideas we are able to actively help our customers implement modern BTO concepts. The SIPLACE SX provides the technological basis with its Capacityon-Demand concept. Embedded into BTO processes, software, modular services and new business models, our interchangeable SX gantries provide the path to more productivity and competitiveness for our customers.

2009 was characterized by the economic crisis, independence and lots of innovations. Will 2010 be a little less exciting for SIPLACE?

That would be sending the wrong signal. Equipment manufacturers will be particularly busy after the crisis. Many customers are already starting with the step-by-step implementation of BTO-oriented processes and need our support. We are also looking to cooperate with other manufacturers, for example with component makers to optimize NPI processes, or with suppliers of reflow ovens to develop more flexible transport solutions, or to minimize lot sizes.

We are also making our services more modular and more flexible. Since companies want to increase or decrease their share of in-house activities depending on the order situation, our service offerings will become even more scalable.

At almost 15 percent, we have a significantly higher R&D budget than most competitors. That’s why we can tackle innovations much more quickly than the rest of the industry. We will expand the SIPLACE SX line and introduce a new machine in the SIPLACE CA field in Nuremberg. And to tie it all together, we will complement our hardware with powerful software solutions for more transparent processes in the entire SMT production environment. Our new BTO concepts and other innovations are critically important particularly for our European customers. To survive, European manufacturing needs intelligent and highly flexible production concepts. But the spectrum of manufacturing concepts is becoming more fine-grained in Asia as well, which is why we will offer new operating concepts to meet the specific requirements of these extremely dynamic markets, where personnel turnover is a significant fact of life. Finally, we also have to complete the final steps of our planned SIPLACE restructuring measures. As you can see, we are moving full-speed-ahead.

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