SigmaTron International : Source Q1 2023

John Sheehan

Inside this issue:

	First Quarter 2023	Volume

Sheehan Named President of EMS Operations

Q&A	2
Inspection Equipment	3
ESD Study	4

About SigmaTron

International

SigmaTron International (NASDAQ:SGMA) is a full service EMS provider with a network of manufacturing facilities in the United States, Mexico, China and Vietnam.

We focus on companies who want highly customized service plus a scalable global manufacturing footprint.

We serve a diversified set of markets which include: industrial, consumer and medical/life sciences customers. Our quality certifications include ISO 9001:2015, ISO 13485:2016, IATF 16949:2016 and AS9100D. We are also International Traffic in Arms Regulations (ITAR) regis-

In January, John P. Sheehan was promoted to President of EMS Operations. Previously, John served as Vice Pres- ident, Director of Supply Chain. During his 37-year tenure at SigmaTron, he oversaw the evolution of the Compa-

ny's supply chain management strategy as it added a global network of operations which includes seven manufacturing locations and an international purchasing office (IPO) in Tai- wan. He received a Bachelor of Arts degree in business accountancy from Northern Illinois University and subsequently completed Illinois CPA certification. Both John and Terry Ander- ton, CEO of Wagz, Inc., report to Gary Fair- head, SigmaTron's CEO.

"John and I have worked together since 1986

and he has been intimately involved in the growth of the Company, both organically and through acquisitions. He is very familiar with our internal systems and all of our operations. He is well respected by the management team and has close relationships with several of our key customers. As we have stated repeatedly, the biggest challenge that the Company has faced during the entire pandemic has been supply chain and material issues and John has led the supply chain teams successfully during this peri- od, serving as an important liaison between sup- pliers, operations and customers," said Gary.

"I'm excited about the opportunities we see for the Company and I appreciate the Board's show

of confidence in me. I believe SigmaTron has a unique position that will allow us to continue to grow and create value for our shareholders, customers and employees. While the challenges remain for our industry, I believe they are outweighed by the opportunities we see ahead," said John.

tered.

Materials Constraints Improving in Some Commodities

The material constraints caused by supply and demand imbalances over the last three years are starting to improve as demand in many industries normalizes. Logistics capacity is also improving, particularly in LTL freight, so transportation costs are more reasonable. That said, every major semiconductor manufacturer still has a selection of components on global allocation and extended non-cancellable, non- returnable (NCNR) windows are still in place at some suppliers, which limits rescheduling flexibility.

The team at SigmaTron International continues to focus on aligning inventories with demand.

Much of the supply-demand imbalance of the past three years was driven by shifts in infrastructure requirements, a need to fill inventories depleted by factory shutdowns and the impact of economic stimulus on consumer behavior. Demand for products driven by those changes in behaviors is normalizing. At the same time, vehicle electrification initiatives and government provided incentives for both electric vehicles and clean energy are driving continued demand and component constraints in those indus- tries. Geopolitical unrest may create unplanned supply chain disruptions or spikes in demand for military-related equipment. Consequently, component manufacturers still have some uncertain-

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Flex assemblies in carriers undergo automated optical inspection on the Acuna facility's state-of-the-artSMT lines.

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A Q&A With John Sheehan

1. What differences will employees and customers see now that you are President?

John: I've been an integral part of Sig- maTron for 37 years, so I've been part of shaping the business model we have. I

value our flat organizational structure and want to continue our tradition of being a hands-on executive team. My management style is to encourage teamwork and personal growth for all employees. I want to see team leaders who delegate well and ensure the members of their team have the resources they need to do their jobs efficiently. We don't need "bosses" in SigmaTron, we need team leaders who take a facilitator approach to manage- ment.

1. How have the challenges of the last few years shaped your perspective of the EMS business model?

John: COVID and the supply and demand chaos left in its wake has challenged every company in our in our industry. It's also challenged all our customers' industries. In some ways, it has changed all our per-

spectives for the better, because it has built stronger relationships among our team and customers based on trust and a greater level of shared visibility into cost drivers and forecasts. We've also had similar experiences with most of our supply chain, particularly distribution. I want to preserve the quality of relationships we've developed during these challenging times, because this level of cooperation benefits all of us. That said, I see parts of the supply chain that are remaining inflexible in non- cancellable, non-returnable ordering policies even as material availability starts to improve. That actually works against the natural adjustments to demand we all should be making that should help better align chip making capacity with what the market needs.

1. What do you see as your primary focus this year?

John: We are going to continue to execute some of the best customer support in the industry and part of my focus is ensuring that our teams have the resources they need to do that. This is also a year of in-

ventory and demand adjustment. Parts availability is starting to improve and customer demand is adjusting to more historical trends. Making sure inventories align with forecasted demand is going to be a primary focus for our executive team, our program managers and our supply chain management team most of this year.

1. What should people who don't know you well know about you?

John: I value feedback from employees, customers, and suppliers. If something isn't going well, I'd like to hear about it, particularly if there is a recommendation for improvement. I've watched this company grow and evolve for nearly four dec-

ades. We have a great team and a fairly unique approach to this industry for a company our size. I don't want to fix what isn't broken. At the same time, I want to make sure that we continue to add the systems, processes and resources necessary to ensure our customers have the high quality products they need, when they need them.

SigmaTron's Acuna, Mexico Facility Diversifies Customer Base

SigmaTron's facility in Acuna, Mexico is offering specialized solutions to a more diversified base of customers.

"Mexico is attractive solution to customers who want to shorten their supply chain, but still want the cost advantages of a lower labor cost country. One of the benefits of our facility is our ability to support customers with specialized manufacturing

requirements," said Frank Magallanes, the Acuna facility's Director of Sales & Program Management.

One example of this is a secure access control project. The facility began assem-

bling flex circuits on 7.4 mil substrate last year and is now in production volumes. The thinness of the assemblies made it neces-

sary to design carriers to ensure the substrate is held in a fixed position during assembly process. The assemblies also require specialized potting, wire wind- ing, programming and test. Production operators must be specially trained on the secondary manufacturing operations because they are uniquely designed to

accommodate the product's

small form factor. Traceability is also critical. The product is serialized and

receives unit-specific programming. The

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Page 3

Tijuana, Mexico Facility Expanding Inspection Capabilities

SigmaTron's Tijuana, Mexico facility is continuing to expand its inspection capabilities by adding automated optical inspection (AOI) machines to its final assembly process. The first machine was received in March and is undergoing validation and connectivity tests.

The Pemtron Eagle 3D 8800- TWIN L AOI system inspects 100 percent of the PCB in 2D and 3D. Combining the two technologies gives a complete optical inspection of a PCB that is shadow free with low false calls, while main-

taining high flexibility in system SigmaTron is the first company in Tijuana to receive these state-of-the art AOI systems.

functionality.

Its advanced algorithms can ex- tract, detect and differentiate diverse component body patterns automatically.

"Our equipment supplier has told us we are first company in Tijuana to receive these units. This is part of an effort we initiated in 2022 to utilize AOI and Industry 4.0 capabilities to help drive continuous improvement in our production operations," said Filemon Sa- grero, the Tijuana facility's Continuous Improvement Engineer and a Six Sigma Black Belt.

SigmaTron Featured in

Circuits Assembly

Magazine

Filemon Sagrero, a Continuous Improvement Engineer and Six Sigma Black Belt at Sig- maTron's facility in Tijuana, Mexico, recently authored an article discussing the impact of stencil design on SPI trends data.

Read Full Article

Acuna

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facility is beginning pilot production of the full box build for this product, along with box builds for related products and should be in production volumes in 1-2 months across multiple product configura- tions.

Renewable energy is also in the mix. Modifications have been made to both the Del Rio warehouse and the Acuna factory to store raw material inventories for a manufacturer of solar energy systems in humidity and temperature controlled areas that can remotely monitored by the customer 24/7. The Acuna facility is building assemblies used in their controller mechanisms.

In another project, the Acuna team has collaborated with a customer to design a test chamber for carbon monoxide detec- tors, enabling the units to undergo exposure to carbon monoxide. Production for these detectors along with a combination smoke and carbon monoxide detector is ramping up.

"Exposing carbon monoxide detectors to carbon monoxide requires a significant amount of permitting and regulatory compliance. The customer had designed a final test and our team worked with them to create a test chamber that would enable the test to be conducted safely and efficiently in production," added Frank.

The facility is also working on the Wagz Freedom dog collar for sister company Wagz, providing assembly, program, test, pack and fulfillment to end custom- ers.

"Each of these customers has specific needs that often go beyond standard assembly requirements. They also have market dynamics that often require specialized logistics support, in addition to a manufacturing solution. Our team researches and develops the tooling and processes needed to get the job done," said Frank.

Page 4

ESD Protection and Packaging/Unpackaging

The need for electrostatic discharge (ESD) protection is drilled into production workers from day one in most electronic manufacturing facilities. SigmaTron's facilities have multiple layers of protection including floor tiles or conductive coating, smocks, individual grounding devices, ESD mats on workstations and ionizing blowers throughout the production process. There are also multiple layers of protection from conductive totes to metalized bags for product as it ships out. However, when a blanket approach is taken to ESD protec- tion, it can create a false sense of security in some operations.

The team at SigmaTron's facility in Chi- huahua, Mexico recently studied ESD packaging options to determine what types of packaging and processes provide the most value in terms of ESD protection during the pack/unpack process. The primary goal was to understand if packaging or processing deficiencies were creating defect opportunities in either the packing process at the facility or the unpack process at a customer's facility and implement appropriate corrective action. A secondary goal was to utilize the design of experiments (DOEs) data to optimize packaging decisions so that the products were appropriately protected by the right level of ESD protection.

The team started by designing a packaging DOE to analyze the protection provided by cardboard, conductive cardboard and anti-static bags for products during

When samples were placed under an ionized air blower, the ESD field meter registered zero.

packaging, in transit and unpacking.

Four different products and associated packaging were tested.

• Product A is a printed circuit board as- sembly (PCBA) in a plastic housing packed in a regular cardboard container
• Product B is a PCBA assembly in a plastic housing inserted in an antistatic bag and then in a regular cardboard container
• Product C is a PCBA packed in black conductive ESD cardboard with dividers
• Product D is a PCBA packed in black conductive ESD cardboard with a tray.

The samples were measured before packaging under ionized air, inside the box prior to closing lids and after 10 minutes of handling

the closed box.

The results of the tests showed that:

• Adding ionizer blowers helped to reduce/eliminate electrostatic charges when opening boxes in all scenarios.
• Anti-staticbags did not make a difference on the charges meas- ured for Product B.
• Black conductive ESD cardboard did not show a significant differ- ence on charge generation for product C.
• Handling material in trays through the process maintained close to zero electrostatic charges in Prod- uct D.
• Use of shielded bags and the cor- rect location of ionizers kept charg- es at zero.
• A test of regular cardboard for conductivity, found the material to be dissipative.

The most significant conclusion was that correct positioning of ionizer blowers

and the operator's correct use of trays

and grounding devices had the most impact on minimizing/eliminating charg- es. This underscores the need for pack/ unpack operators to be well trained in following procedures related to ESD

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Acuna Facility Expands Cross-Border Warehouse Space

SigmaTron's Acuna, Mexico facility has begun moving into its new 30,000 sf of

warehouse space in Del Rio, TX. This warehouse will include 5,000 sf of in- bond space. The building also includes 1,200 sf of environmentally-controlled space for a customer requiring a temperature and humidity controlled area for their sensitive components. This area will

include a monitoring device enabling customer and SigmaTron personnel to view current ambient conditions via computer or smartphone 24/7. The data is updated every 15 minutes.

US Customs has provided the specifications on the fencing requirements for isolating the in- bond space and work will begin on the fencing in mid-March.

"We anticipate the warehouse modifications will be complete by Q2 2023.

The in-bond space can easily be expanded if we need it. This addition brings our total Del Rio warehouse space to 56,400 sf of traditional space and 21,000 sf of in-bond space," said Dan Camp, VP Acuna/Del Rio Opera- tions.

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Materials

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ty in planning capacity and segments of constrained products.

Lengthening lead-times for constrained components also drove orders being placed for timeframes as long as 18-24 months in advance. In a normal market cycle, easing of component constraints would be followed by a focus on rescheduling this longer lead-time demand at both component manufacturers and product manufacturers. This would help shrink inventories and would free committed capacity at semiconductor manufacturers to be re-directed to areas of the market with growing demand. In the current market, semiconductor manufacturers are not relaxing extended NCNR policies. Other types of parts manufacturers and distributors are adding some levels of flexibility, generally for parts in high demand or for orders that are further than 90 - 180 days out.

SigmaTron's combination of an industry- standard ERP software with an internally -developed iScore suite of supply chain

management tools help address the challenge of managing appropriate inventory levels by enabling stakeholders to track demand, material on order, inventory, work-in-process, finished goods and ship- ments. An MRP Share program provides suppliers with complete customer forecast visibility, plus current inventory and material on order.

On the supply chain side, this system enables the purchasing team to view consumption across the company on a given part. SigmaTron's IT team has enhanced system capabilities to help reduce the workload material constraints are creat- ing. A third-party API that pulls broker and distributor inventory is integrated into the iScore system. This information can be viewed simultaneously with the MRP plan to determine the viability of filling shortages in real time.

Program managers are working with customers on a case-by-case basis to develop specific plans that draw down inventories in relation to customer forecasted drops in demand.

Program teams are running horizontal MRPs to view the total demand from each account and monitor the way consumption and demand is changing in upcoming weeks to look for early indicators of changes in demand. Some of the IT tools being utilized include:

• Inventory vs. demand in relation to the next 90, 120 and 180 days
• Dollarized push-pull reports that include dollarized cancellations to make it easier to view inventory status in both units and actual cost.

Purchasing and program teams are reviewing and resizing material bonds and finished goods kanbans, as needed.

While there continues to be uncertainty in the supply and demand equation, SigmaTron's real-time systems combined with an experienced supply chain management and program management team are focused on developing appropriate solutions for each customer.

ESD

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workspace compliance regardless of what packaging was used. Conductive cardboard and anti-static bags did not perform significantly better than regular cardboard.

Based on the study's data, the customer determined that the packaging choices

made for specific products provided acceptable levels of protection and that more focus needed to be placed on positioning of ionizing blowers in the unpacking operation.

While the study is not being used to suggest that customers eliminate the levels of packaging they have specified for their products, it is being used to provide data

to customers considering a packaging change with an assessment of the effectiveness of different types of packaging under controlled conditions. Given that different classes of components have different levels of sensitivity to ESD, all packaging options should be considered when doing a cost/benefit analysis.

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