Component obsolescence was flagged as a supply chain threat by roughly three-quarters of respondents to an Electronic Design and Source Today survey, representing an almost seven percent jump over the last year. The results of the 2018 Distribution Study reflect a growing concern within procurement, engineering and executive roles toward unexpected changes to the global electronics supply chain.
Managing obsolete and end-of-life electronics is a persistent concern in manufacturing and other industries that generally support products for long periods of time. When components are discontinued, companies often have to put money into redesigning products around other parts. Most respondents say they are looking to avoid that at all costs, with roughly a third trying to cut supply chain expenses over the next year.
Those sweating over obsolescence are also likely among the 54 percent of respondents pointing to supplier consolidation as a supply chain risk, up from 43 percent in 2017. Mergers and acquisitions are worrying because the combined companies often shut down overlapping product lines, and unless drop-in replacements are available, procurement and engineering staff will be forced into costly redesigns.
The threat of consolidation has loomed over the semiconductor industry in recent years, as development cost swell and growth flags. Market research firm IC Insights says that the sector generated $107.3 billion of deals in 2015. The total was roughly equal at $99.8 billion the following year. Last year, the pace slowed to $27.7 billion as the pool of available companies evaporated, according to the Phoenix-based IC Insights.
Not everyone shares the same sense of apprehension, according to the 1,100 survey responses. While 77 percent of both engineering and procurement professionals say that the threat of obsolescence is at least somewhat important to their supply chain, only 62 percent of executives agreed. Only 46 percent of executives flagged consolidation as a hazard, as opposed to 55 percent of engineering and 57 percent of procurement staffs.
Many respondents are also wary of potential new sources of supply. Only 14 percent say China’s investments in semiconductor production and design pose an important threat to the supply chain, while another 33 percent say it’s somewhat important to them. The total number of respondents skittish about China’s push into semiconductors from 42 to 47 percent over the last year, the survey shows.
China reportedly intends to announce a new $19 billion fund as part of the nation’s larger push to boost its self-sufficiency in chips. The country’s national strategy has drawn the ire of the Trump administration, which has ramped up criticism of the country’s alleged theft of intellectual property. Last week, the White House imposed tariffs on $34 billion of Chinese goods partly as retribution, while weighing another $16 billion of levies.
To boost manufacturing capacity and close the gap with American technology, the country has slashed taxes for many local companies and funneled funding to them through provincial governments. Roughly one-third of the money is being used to build new factories in China. This year, the Chinese are projected to spend nearly as much on fab equipment – $5.8 billion – as major multinationals – $6.7 billion – operating there, according to SEMI.
The country has also redoubled its efforts in fundamental chip design. The number of Chinese companies that outsource the production of chips they design has grown from 500 to over a thousand over the last five years. And more multinationals are transferring technology to Chinese partners to help muscle into the country’s massive market. These pay-for-play tactics could indirectly erode the competitive of American companies, analysts say.
Survey respondents clearly seem more concerned about unpredictability than they were last year. New companies in China could start splashing around in the supply chain at the same time that the electronics industry is struggling through part shortages, which could worsen as semiconductor suppliers continue to buy each other – all of which creates uncertainty for everyone from engineers to executives.