IC Trends Blog | Electronic Component Supplier News

Electronics Manufacturing Returning to the US?

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The electronics industry has been at the forefront of manufacturing outsourcing for more than a decade.  Many of the largest companies in the industry began this trend by selling manufacturing capacity here in the United States to electronics manufacturing service companies (contract manufacturers).  Then the global chess game began as manufacturing rapidly moved from region to region, chasing cheaper labor costs.  First there was the shift to Mexico prior to the dot-com meltdown, then a movement to Eastern Europe and eventually Asia, with a primary focus on China.  Large contract manufacturers like Flextronics and Foxconn became dominant players in the electronics industry; employing hundreds of thousands of low wage workers and controlling a large portion of the total global electronics component spend.

However, now that companies have been outsourcing for some time it appears that when the labor cost savings are weighed against the total costs of manufacturing overseas, there is not a significant savings, if any savings at all.  Rising labor costs in China, higher transportation costs, intellectual property concerns and many other issues are causing manufacturers to reassess their strategies.  A recent poll by The Boston Consulting Group of the 100 largest manufacturing companies in the United States indicates that they are considering bringing back manufacturing to the U.S. (http://www.bcg.com/media/PressReleaseDetails.aspx?id=tcm:12-104216).  This could be good news for the U.S. economy.

Designing in Electronic Component Obsolescence

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It has always fascinated me how OEM’s can design in an electronic component that is either already end of life or is quickly headed in that direction.  This article   http://www.ebnonline.com/author.asp?section_id=1541&doc_id=242302& does a great job at explaining how this might work, or perhaps not work, as well as what to do to avoid the situation. 

To highlight an example, I was recently working with a manufacturer that was attempting to design an LED into their product.  The LED itself had not gone end of life, but the disruptions in Thailand had greatly impacted the supply and the lead time was months out.  We did have enough supply available, but by the time the OEM finished their testing and burn in process, those parts had been sold.  We had also offered an alternate part of similar quality that was readily available, but the OEM showed no interest in that part.  Now they are faced with a customer that is expecting product that they are unlikely to receive within the time frame specified.

Developing a plan to account for obsolescence in the design process will help avoid this situation as well as reduce the incidence of having to utilize the gray market to solve these challenges.  When all else fails, the gray market can be a useful alternative provided you utilize a company that you have confidence in and that will do the right job in terms of testing and inspection.  Some situations cannot be avoided due to long lifecycle product (i.e. defense applications).  Extreme caution is the order of the day in these instances.

New SAE International Standards for Counterfeit Electronics Parts

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SAE International just released their new standards to combat counterfeit electronics in the supply chain.  This standard is mainly geared towards the aerospace and military industry.  However, it would be good policy for other manufacturers in the industrial and consumer sectors to adopt policies similar to these.

The standard for military and prime contractors in the defense and aerospace industry is AS5553 Counterfeit Electronics Parts; Avoidance, Detection, Mitigation.  This standard was adopted by NASA and the Department of Defense as a means to eliminate counterfeit parts from the electronics supply chain.  The second standard, As6081AS6081-Counterfeit Electronic Parts for Distributors pertains to distributors supplying those manufacturers in the aerospace and military electronics supply chain.

These standards will help to reduce the proliferation of counterfeit product in the supply chain, but will not eliminate the problem.  The military and aerospace sectors produce products that have very long life cycles.  That is understandable.  The cost of developing a new weapons system or aircraft is considerable and those products should be able to be produced for a long time.  However, the component manufacturers are largely driven by consumer markets where product life cycles are considerably shorter.  As a result, product that was designed in a decade ago into an aircraft is unlikely to be readily available from the manufacturer.  It then must be sourced on the open market and that is where the true danger lies.  Unscrupulous suppliers as well as unwitting suppliers can create the perfect storm to wreak havoc with a supply chain.  It is therefore imperative that those manufacturers work with companies that have adopted standards such as those outlined by SAE.

What Does 2012 Hold in Store for the Electronic Components Supply Chain?

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As we launch into the new year (it's February already!) I thought it might be a good time to take a look at what transpired last year for the electronics supply chain and see what that might mean for the New Year.  Although acts of God are terribly difficult to predict, there is one thing that we can count on.  They will happen.  We are never sure when and where, so we have to be prepared as best as we can with the limited resources that we respectively possess.

To start with, it might be a good idea that major technology parks aren’t build on flood plains.  In speaking with one executive of a major hard drive manufacturer over the holidays, it was apparent that they had no contingency plans for such an occurrence, nor did most of their suppliers and competitors. Consider the fact that large floods have occurred along Bangkok’s Chao Phraya River in 1942, 1978, 1980, 1983, 1995, 1996, 2002 and 2006.  You would think that this might have been a warning to the government planners and companies that chose to locate 45% of the world’s hard drive production in a potential disaster zone of one of the key components (hard drives) not only to the personal computer industry, but to the electronics industry as a whole.  Perhaps this is another example of government policy distorting markets given the rich subsidies that the Thai government has provided to the electronics manufacturers for locating in Thailand.

(Picture credited to NYTimes.com, article by Thomas Fuller, Published: November 6, 2011)

Going forward, I think we can see some specific efforts to avoid these situations.  Here are five trends that we think will impact the electronics supply chain:

• There will be efforts made by companies to avoid relying on a narrow source of supply, whatever that may be.  Companies will work to make their supply chains more dynamic  to meet customer’s actual and perceived demand.  Whether it is a reliance on a specific source of power in the case of the Japanese tsunami in March or the concentration of manufacturers and their subcontractors in one area in Thailand in November.  This is in contrast to the initiatives by companies to reduce their approved vendor lists over the last several years.

• The floods in Thailand will be largely felt in the first and second quarter of 2012.  Most customers already had their materials in stock for the end of the year.  The real impact is will be felt in the coming months.

• As a result, the supply chain will become more fragmented and subject to more disruptions in the short run.  That will place a great deal of strain on procurement departments to meet supply in a lean manufacturing/just in time environment.

• Given the reluctance of component manufacturers to increase capacity and production and the availability of product on the open market, if there is any uptick in demand there is likely to be shortages as a result.  Given the prevalence of counterfeiting, it is very important that companies engage with distributors that can provide the necessary safeguards to protect their supply chain from potential quality issues.

• The continuing rhetoric out of Washington bashing business and the 1 percent will continue to be a drag on corporate spending and will not be resolved until the election.

These are just our observations.  For additional thoughts that you have or to find out more about IC Trends please go to www.ictrends.com.

Takeaways from the Symposium on Counterfeit Electronic Parts (Part 2)

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Last week I attended the Symposium on Counterfeit Electronics Parts.  The defense industry has awakened to the very serious problem of counterfeiting.  And although there are great efforts underway to coordinate information amongst the participants in the electronics supply chain, there are still significant obstacles to overcome.

The most fundamental of those are the differences between the life cycles of the weapons systems being built and the life cycles of the underlying electronic components.  Weapons systems designed to last decades are incompatible with the pace of technological change in the electronics market.  Unfortunately, there does not seem to be an easy answer for this.  Prime contractors are expected to build obsolescence planning into their budgeting process, but that will not be an easy task and will be very time consuming.

On the positive side of things, it appears that the industry is embracing all of the channel partners and understanding the value brought to the supply chain by all of the players as well as encouraging communication amongst the various stakeholders.  Obsolescence issues are very pervasive in the defense market, so it is imperative that the market participants exert as much diligence as possible to insure that counterfeiting is combated at every opportunity.

Takeaways from the Symposium on Counterfeit Electronic Parts (Part 1)

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Last week I attended the Counterfeit Electronics Parts Symposium in Anaheim.  I had attended a similar symposium in July of 2010.  Although no two groups can seem to agree on the definition of what a counterfeit part is, it does appear that the industry has begun to focus resources on the problem.  Even Congress has gotten into the act as the Senate has passed the “Counterfeit Electronics and the Defense Authorization Bill.”  Use this link to read about this new counterfeit electronics bill.  This bill will put the onus and cost of repairing and replacing counterfeit components on the contractor that builds the weapons system.  It would also carry severe criminal and civil penalties for those involved in the selling of counterfeit components.

The opportunity for counterfeiting in the defense industry primarily arises as a result of the different life cycles of the weapons systems and the electronic components that make up those weapons systems.  Most weapons systems are designed to last decades.  However, the life cycle of the electronics that go into those weapons systems are much shorter.  In many cases the life cycle of the components are three years or less.  Therein lies the problem and the inherent opportunity to introduce counterfeit material into the supply chain.  In addition, the requirement for leaded parts for many military applications exacerbates the problem as the industry continues to move away from harmful chemicals contained in the components.  Since many components are no longer available from the manufacturer or authorized distributor, contractors are forced to purchase material on the open market and that is where things get dicey.

Adding to this mix are electronics waste recycling efforts.  Much of the e-waste generated in the US is sent to China for recycling.  Product sent to China is then recycled by peasants, with the components being reclaimed from the printed circuit boards using archaic methods.  Those components are then sent to Shenzhen and resold as new product, in many cases with the component being resurfaced or “blacktopped” and possibly even remarked as a different component.  Those parts are then sold on the open market.  And depending on the level of diligence conducted by the suppliers and contractors, the product may end up being installed in a weapons system.  That is the vicious cycle that creates the opportunity for counterfeiting.

Continued Flooding Interrupts Supply of Electronic Components

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As the flooding continues in Southeast Asia, electronic component manufacturers are feeling the effects of the unfolding tragedy.  Hard drive manufacturers and electronic component manufacturers are reporting production stoppages and supply issues for the fourth quarter.

Since July, more than 80 percent of Thailand's 77 provinces have been flooded, submerging more than 10,000 factories.  Western Digital, Sony, Rohm, NXP, and Panasonic appear to be heavily affected.

Sony currently has two of its three Thai facilities closed.  Western Digital has closed all of its Bangkok area factories.  WD shipped more than 50 million drives last year and employs some 37,000, now left without work for the short term.

The cleanup from this disaster brings additional concern.  With much of the manufacturing equipment and entire assembly lines underwater, extensive repairs and in many cases replacement of machinery will be required before resuming production. 

Electronic component supply will continue to suffer as production remains on hold for many factories.  Many component manufacturers are facing losses for the fourth quarter, and have downgraded their production forecasts.  This will mean an increased need for finding suitable replacement electronic components in order for product manufacturers to minimize their production risks.

Affected Factories:

• Avago Technologies Pte.
• Benchmark Electronics Inc.
• Fairchild Semiconductor International
• Hana Semiconductor
• Marvell Technology Group Ltd.
• Microchip Technology Inc.
• Microsemi Corp.
• NEC Corp.
• NXP Semiconductors N.V.
• ON Semiconductor Corp.
• ROHM Semiconductors
• Sanyo Semiconductors
• Seagate Technology LLC
• Sony
• Texas Instruments Inc.
• Toshiba Corp.
• Western Digital Corp. (WD)

How the Flooding in Thailand Impacts Component Supply

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As the flooding continues in Southeast Asia, the electronics supply chain is beginning to feel the effects of this unfolding tragedy.  Hard drive manufacturers and component manufacturers are beginning to report upcoming production issues for the fourth quarter.  Western Digital, Sony, Rohm, NXP, and Panasonic appear to be the companies that are initially effected.  We will monitor the situation and provide updates as they become available.

For more information, view Marc Herman's article "Thai Floods Devastate Supply Chain."

6 - 8 Reasons Electronic Component Counterfeiters Love Their Jobs

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How the World has Created an Ideal Climate for Counterfeiting

We know about, we’ve talked about, we’ve blogged on the subject of the massive problem that counterfeiting is to the component industry.  In fact, according to Lev Shapiro in his article “Counterfeit Electronics: Threats, Risks and Prevention Practices”, on March 16, 2010, “Statistics places electronics fourth in terms of total seizures by category, after footwear, clothing and pharmaceuticals.”

Judging by how many fake Gucci purses and Nike shoes that we see being peddled on city streets, it’s shocking to see components counted in the same ballpark.  Also in Shapiro’s article, he unpacks why there is such a favorable climate for counterfeiters at this particular point in history.

He lists these as:

1. Weak legislation and enforcement in the countries of low cost economies, especially in China. Enforcement of anti-counterfeiting legislation in these areas is very lax. China has a conviction rate of approximately 5% (China State Administration of Industry & Commerce Annual Statistics).
   1. Since China is the primary area of concern that IC Trends has targeted for counterfeit components, this is a huge problem 
2. Little cultural concern about protection of Intellectual Property (IP). Regulation of exports in China has been relaxed significantly in recent years, causing a large increase in counterfeiting.
3. Developed technology and the growing sophistication allows counterfeits to be produced at far lower cost.
4. Huge accumulations of electronic scrap has become the source of used components and counterfeits. Verification of scrapping is not simple and many scrapped components without adequate control during disposal may find their way onto the grey market, presenting a real problem for Original Equipment Manufacturers (OEMs) and Contract Equipment Manufacturers (CEMs).
   1. See the blog “Electronic Shortages…Again…” for a more detailed account of the increase in raw materials and its effect on the component market 
5. Global outsourcing and a complex supply chain--in many cases spanning multiple partners spread around the globe.
6. Internet commerce. Internet is a market place allowing buyers and sellers to make fast trades without even meeting "face to face." Under such trading, people don't know who they are doing business with. You can buy from a company, pay for the goods and by the time you find out that those components are faulty, the Web site has closed down and the company disappeared. Broker's Forum, an Internet trading platform, has about 3,500 members. Only a few of them have supplier relationship or product inspection programs, leaving many opportunities for counterfeit product entry. The Internet has become the preferred distribution channel for counterfeit and grey market goods because of the low barrier to entry, ease of use and world wide coverage.
   1. Also for reference, see the blog “Your Electronic Component Supplier – 3 Signs You Can Trust Them.”  Offline and especially online, your supplier has specific criteria they should meet to earn your trust and business.
7. RoHS and WEEE requirements create additional opportunities for counterfeiters. They may provide paperwork stating that devices are compliant with the European legislation for old leaded components or offer the lead-free parts to exempted industries that need components with SnPb plating for their high reliability products.
8. Counterfeit has become an extremely profitable business, generating income that can compete with narcotics and weapons trafficking, but at much lower risk.

The climate is right for counterfeiters and with the ever increasing demand it’s easy to see how buyers can run into obstacles.  At IC Trends we’ve been blogging about counterfeiting with increasing intensity over the last year.  Following the CALCE conference we resolved to put additional measures into place to make sure the components we supply for our customers are untouched by counterfeiters.

Here is an update on what we’ve done and how we’ve done it.

• Protecting our customer's supply chain - Increased our inspection capabilities, including increased investment in equipment and training
• Limiting risk by dealing with quality suppliers - Reduced the number of vendors that we purchase from in mainland China
• Stopping the problem before it becomes a problem - Having all product originating in mainland China inspected and tested prior to the product being shipped to our facility
• Building relationships - Personal visits to Chinese vendors to asses their quality controls and to personalize relationships
• Online search capabilities - Continued investment in our MarketMaker® online search capabilities to indentify quality vendors and product

Electronic Component Chip Supply Impacted by Japan's Disaster

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In the Wall Street Journal 11 hours ago, in "Lenovo Says Chip Supply Could Hit Tablet Shipments," Owen Fletcher says

The article goes, as do other online sources, to speculate on this shortage's impact on Apple specifically, but all DRAM utilizing devices.

We wrote about DRAM last week and it looks like it's going to continue to take a hit.  We've seen the requirements for DRAM components rise dramatically as people scramble to meet their requirements.  If we can offer you the same assistance, please contact us or search our online MarketMaker database see the latest availabilities.