Uncertainty Has Become The Only Certainty - EMS@C-Level with IMI CEO Lou Hughes

Lou Hughes, President and CEO of IMI, brings us inside the evolving world of global electronics manufacturing where uncertainty has become the only certainty. From his perspective leading a major EMS provider through turbulent times, Hughes shares candid insights about how companies are adapting to constant disruption.

The conversation opens with a frank assessment of tariff uncertainties and their paralyzing effect on customer decision-making. "I think our customers are totally frustrated by the whole situation and everybody is just frozen in place," Hughes explains, highlighting how geopolitics directly impacts manufacturing strategies. This uncertainty creates a challenging business environment where planning becomes increasingly difficult.

What emerges as particularly fascinating is Hughes' articulation of a fundamental industry paradox: customers demand manufacturing flexibility across regions to mitigate geopolitical risks, but resist paying the premium required to maintain that capability. "To say you're fast and flexible is one thing, but to truly be able to deliver that to a customer at a competitive price they expect is completely different," Hughes notes. This tension between flexibility and cost efficiency represents perhaps the central challenge facing global manufacturers today.

Hughes then reveals IMI's strategic response - consolidation around "super sites" rather than maintaining numerous smaller facilities. He explains how the company recently sold its Czech facility while expanding operations in Serbia, believing that "fewer bigger sites" improve competitiveness by controlling overhead costs. Similarly, IMI's Mexico operations have become its busiest location for new product introductions, particularly attractive to customers seeking tariff advantages under current trade rules. This practical approach to balancing global presence with operational efficiency offers valuable lessons for navigating manufacturing in an increasingly unpredictable world.

Ready to dive deeper into the realities of global manufacturing strategy? Listen now to understand how leading manufacturing companies are redesigning their operations to thrive amid constant change.

EMS@C-Level is hosted by global inspection leaders Koh Young (https://www.kohyoung.com) and Global Electronics Association (https://www.electronics.org)

You can see video versions of all of the EMS@C-Level pods on our YouTube playlist.

Transcript

Introduction with IMI CEO Lou Hughes

Philip Stoten 0:09

Hello, I'm Philip Stodeman, from my House to Yours, welcome to EMS at Sea Level. I am joined by IMI President and CEO Lou Hughes. Lou, pleasure to see you. I think last time we were on camera it was Munich and so much has happened since then. It's a crazy time to be heading up an EMS globally. Oh my gosh it sure is, phil.

Lou Hughes, President and CEO of IMI 0:34

It's been a crazy gosh almost eight months.

Tariffs Impact and Market Uncertainty

Philip Stoten 0:38

Yeah, yeah, it's amazing that you've been in the role so long and well, yeah, ridiculous amounts happened. Let's just tackle the elephant in the room quickly what are the latest feelings with respect to tariffs, and how's that kind of 90-day cessation making you feel, or are you stressed at what's going to happen next when those 90 days elapse?

Lou Hughes, President and CEO of IMI 1:03

stressed at what's going to happen next when those 90 days elapse. I think there's been so much done and said with the tariffs that I'm kind of immune to it. Now you know how you catch a really bad cold or flu and then you get better and you no matter what else happens. Or you catch a really, really bad one and the next one you catch doesn't feel that bad. So I don't know. I just feel like I'm kind of not interested in hearing about it anymore. I'm really not.

Lou Hughes, President and CEO of IMI 1:39

I think that our customers are totally frustrated by the whole situation and then everybody is just frozen in place. No one knows what to do next. No one knows what the next decision will be. So I think I really, really hope that there is certainty that decisions will be made by the July 3rd timing, because that's the three months timing. I do find it interesting that only one decision you know the UK decision has been made, or one agreement has been made. I had hope for a number of agreements to be made by now, so maybe it's the next 30 days will be eventful.

Speed vs Cost: The Customer Flexibility Paradox

Philip Stoten 2:30

So yeah, so we'll see. So we'll see. Yeah, it's funny, it's in everybody's results and everybody's forecast at the moment. It's something that people are concerned about. What I really wanted to talk to you about today and I guess you know tariffs and disruptions generally are part of that is how you kind of adjust and design your global footprint, but you overlay that global footprint with speed and agility to allow you to respond to what's going on in the market and respond to customers. I think, regardless of whether it's tariffs, the pandemic, trade wars, geopolitics, just general uncertainty in the market, having a global footprint is one thing, but actually having the speed and agility to operate that global footprint successfully for your customers is another. I know that the footprint and the factory set up was something you were very keen to look at when you took this job. How's that evolved and how's that impacted the Q1 results? David Schlussel.

Lou Hughes, President and CEO of IMI 3:36

So our Q1 went really well, comparatively right Year over year. We had a really good Q1, and I think the company will continue to perform. One thing that I believe is a conundrum that's happening out there is you talked about speed and agility and flexibility and how customers really want that today so that they can shift on the dime from one region to another, depending on what's happening geopolitically, but at the same time, they really don't want to pay for that. They don't want to have to pay a premium to be able to support that, so that you can utilize your equipment and you can cover your overhead as effectively as possible. But in this world where you have to leave enough open capacity to be able to move customers from site to site, because the facilities have to have the flexibility to take on a customer or two or three in a location that isn't expecting that customer, let's say so.

Lou Hughes, President and CEO of IMI 5:21

You know we've been really struggling with customers as it relates to talking to them about hey, first of all, you have to pay for additional test equipment and fixturing and whatnot, because if you truly want to be flexible, then you have to have, you have to be set up, you've got to be ready in two sites, or three sites, two sites, right, but then they don't want to. You know, have to pay the NRE costs. And if we have to ship testers back and forth from one location to another, it doesn't mean that that facility is going to be ready to come up to speed with that tester. You know it's heavy, it's expensive to airship. So you know, to say you're agile, to say you're fast and flexible, is one thing right, but then to truly be able to deliver that to customer at a competitive price that they expect is a completely different thing.

Lou Hughes, President and CEO of IMI 6:10

So that is the dance that we're doing now with customers is to say, well, you could have this price over here at this site dedicated to this site, with one set of test equipment that gets amortized over the life of the program. Or you could have two sets of test equipment. We could make room for you at both sites. We're going to have to charge you a little more to do that on a piece, part basis and for the NRE. And customers just say no, no, no, no, no. So it's tough.

Philip Stoten 6:43

Yeah, Well, it's that classic EMS thing, isn't it? We want it now, we want it free and we want perfect quality. So it's a crazy situation. It really is. It's another set.

IMI's Global Footprint Strategy

Lou Hughes, President and CEO of IMI 6:56

I guess it's another set of challenges that we have to figure out. We have to figure out how to be agile, how to be fast and flexible, but how to do so as efficiently as possible, so that we can still provide as cost effective a solution for the customer as possible.

Philip Stoten 7:17

Yeah. And then, with respect to the customer, they have to understand that that doesn't come without cost, but they have to understand that there's value delivered as a result of that. You know, if you're going to have that just in case strategy so long we've had a just in time strategy rather than just in case.

Lou Hughes, President and CEO of IMI 7:34

If you're going to build, that in you're going to have you're going to have inventory overhang, you're going to have inventory.

Philip Stoten 7:41

Oh, inventory is a whole other thing. That's right.

Lou Hughes, President and CEO of IMI 7:44

That's right, because now you've got to ship the inventory from one site to the other. Yeah, and so it's extra cash, and you know. So I like that. I like that just in time, to just in case. That's really right, and being that what happens in the next 30 days across Southeast Asia might be shocking, right, it might be shocking that, you know, malaysia gets one tariff that's very different from what Vietnam gets, that's very different from what Thailand or Philippines gets. So that's why customers will and may want to move production based on whatever the final result is, and that's also true of.

Lou Hughes, President and CEO of IMI 8:25

Mexico.

Philip Stoten 8:27

Yeah. And you've got this nice mix of the Philippines, of China, of the EU and of Mexico. How's the balance in those working out, and have you been able to kind of rationalize your footprint in each of those to where you want it to be, or is that still an ongoing process?

Lou Hughes, President and CEO of IMI 8:45

Ongoing process. You know, by the time this airs, I think it will be public that you know we have sold our check facility and we basically sold the asset there. We sold the real estate, we kept all the customers and we're consolidating all of that to Serbia and Bulgaria, our sites there. I'm a believer in super sites. I'm a believer in having fewer bigger sites, because I think you can be more competitive that way. As it relates to overhead, overhead is such a big part of the cost in this business, both fixed and variable. If you can't keep that below 10%, then you're just going to be in trouble. And these small sites struggle to scale. They struggle to provide a continued competitive price for the customer, a continued competitive price for the customer.

Lou Hughes, President and CEO of IMI 9:43

So you know, by our growing in Serbia, our Serbia site's really great. You know, we're in this great location which is south of the capital, belgrade, a city called Nice, and we're kind of there alone and it's great because we have all the access to labor. Yeah, the talent, yeah, it's just going great there. We've got a great team and we're going to double the size of that facility over the next two years. So everything that was in check will come to Serbia and all the growth will end up there and we're super competitive there, right.

China Operations and Regional Competition

Lou Hughes, President and CEO of IMI 10:24

So you know, it's those small changes that are still going on in footprint that are important. We're going to grow. Our Mexico site is doing great. We're turning that around. The guy who runs that site, hera Milton Bizarra, is a star and he's turned it around. From the injection molding we do there to all the EMS and highly automated assembly and tests that we do there. He's turned all that around and that, to me, is the place where most customers, at least for North America, are going to and that's probably our busiest site in terms of NPIs and transfers.

Lou Hughes, President and CEO of IMI 11:02

Because customers who are you know? Let's say they're, you know, 70% US and 30% rest of world, then they're going to want to build in Mexico, right? Because they get that zero tariff on their entire BOM, right? So if it's a $150 product and 80% of that that is bomb and 20% is value add. Well then, we bring the whole darn bomb in for 0% essentially tariff, and that's huge right, versus paying 10% somewhere else anywhere else right, Because the rest of the world is at 10%.

Lou Hughes, President and CEO of IMI 11:44

So so Mexico. Now, everybody has this worry right now, phil, that the US is going to force Mexico to apply the same tariff on China that the US has for anything that's USMCA. So if that happens since most of the product we bring in from Mexico is coming from China well then it won't be so it's a whole different ballgame again, isn't? It. It is Whole different ballgame again, right?

Philip Stoten 12:15

Yeah, yeah. But I like what you're doing. I like that. I like the idea of those four super sites in Mexico, in the Philippines, in Serbia and in China as well, and you've changed the footprint a bit. In China, you closed their Chengdu facility and you've rationalized. You're getting towards having that kind of super campus there as well. That's moving in the right direction. Is that mainly serving the local Chinese market or is there a lot of export out of there as?

Lou Hughes, President and CEO of IMI 12:46

well, mainly local China for China. It's really our multinational customers that also do business in China, and so we support them in China, but we still have to be super competitive in China, right? I mean, it is so competitive there right now, phil and again, we have a really good team there that's at the top of their game and they can provide. I think, as it goes by our regions, they're probably the most efficient group of people in terms of their execution, yet they still struggle to make money right, because it's so hyper-competitive.

Philip Stoten 13:28

There's so much open capacity chasing less and less business, right yeah yeah yeah, and there's plenty of manufacturing talent there and you know they've certainly over the last 25 years that had a um manufacturer electronics very successfully and they have and they work so hard.

Lou Hughes, President and CEO of IMI 13:45

Absolutely, they're such an incredibly hard work ethic and the supply chain is short. So yeah, yeah, yeah.

Closing Remarks and Future Outlook

Philip Stoten 13:55

There's a lot to offer there. Well, it sounds like everything's moving in the right direction. I really like this strategy of having these facilities. The only way you're going to build that agility and have that capacity to put stuff in is to have big facilities. You can't have that 10% or 15% of available capacity spread over a whole bunch of small sites. So it seems a very practical strategy. Q1 results moving in the right direction. Hopefully Q2 continue that and hopefully by the next time we speak we'll have some more clarity on tariffs and what's going on politically. But, Lou, in the meantime, thanks so much for your time.

Lou Hughes, President and CEO of IMI 14:33

Great, good talking to you.