Managing Product Obsolescence—Now You See It, Now You Don't

June 7, 2004
Impending international lead-free mandates are putting pressure on chip manufacturers to better manage their product portfolios.

When Allen-Bradley's Electronics Division phased out production of all of its electronic components in early 1997, it notified customers which products it was no longer supplying, including part numbers. On top of that, the company recommended specific replacement parts and suggested other manufacturers by name as possible sources.

Most semiconductor companies notify their customers immediately when a part is about to "disappear" from their catalog. National Semiconductor does so on a quarterly basis. Hewlett-Packard is working with supply-chain partners and others in the industry to streamline its obsolescence procedures, including material and components suppliers, contract manufacturers, and OEMs.

"If you're in procurement and receive this notice, you probably don't know that the notice affects the bill-of-materials for a specific customer," says Cliff Frescura, PCNalert's vice president of solutions. PCNalert is one of several companies that are building databases to provide chip suppliers and their customers with real-time electronic component obsolescence data and bill-of-materials management. "The possible result is that a manufacturer might be producing a board with an obsolete product," he adds.

Last summer, the market provoked suppliers to issue end-of-life notices for many of their components. Texas Instruments announced a new obsolescence policy, increasing the notification period for its discontinued logic and analog product lines from six months to a year, followed by a six-month period when customers can take delivery. TI said that because 80% of a customer's total development cost is determined at design time, failure to catch component-status changes by this stage could result in tremendous costs.

The pending international transition to lead-free devices is speeding the flow of new obsolescence notices. PCNalert is currently receiving 50 product obsolescence notices a day on average and expects this to increase as deadlines for new international lead-free products approaches.

There are actually several product-obsolescence management specialists who collect and provide obsolescence product data information for distributors, OEMs, and contract manufacturers. In addition to PCNalert, American Electronic Resource, with offices in California, Texas, and Australia, provides a search service for obsolete parts and technical support, while 4-Star Electronics stocks mostly obsolete parts from more than 400 manufacturers, updating its database daily. Semitronics Corp. also specializes in "hard to find" and discontinued devices. Texas Components says it supports the "almost daily disappearance" of linear, digital, and mixed-signal ICs.

Micro Circuit Engineering (MCE) maintains obsolete data-reading equipment, enabling it to replicate components for existing "long-lifetime" systems that need to be maintained and supported (typically military and industrial hardware). In many applications where equipment is being upgraded, MCE says it can add functionality to the original chip design while maintaining the original package dimensions. The i2 TACTRAC from i2 Technologies Inc. helps identify, solve, and minimize the impact of electronic component obsolescence for electronics distributors, contract manufacturers, and OEMs. Arena Solutions Inc. markets a product called Arena PLM to help manufacturers reduce errors in communication and share product data information with contract manufacturers.

WHAT'S IT GOING TO COST? As a general rule, supply-chain specialists believe that highly innovative products—such as semiconductors—usually produce higher profit margins. However, they become obsolete sooner and, as a result, may be more costly to produce. Less innovative products usually show lower profits, but also lower cost in terms of their obsolescence. But the growth of offshore contract manufacturing complicates the issue, often increasing cycle times. "Longer cycle times just inherently add risk," says Jan Anderson, National Semiconductor's director of supply-chain planning, Central Technology Manufacturing Group.GET THE LEAD OUT Semiconductor manufacturers trying to meet the requirements of Europe's Restrictions on Hazardous Substances (RoHS) directive face a daunting task: Can they switch over to lead-free products, effectively obsoleting their current product lines, and meet all other directive requirements by 2006?

Most chipmakers seem to be ready for the change, but some are lagging. RoHS affects the shipment of electronic components into the 15 European Union (EU) member states, but that could quickly climb to 30 because other countries have applied to become EU members. Japanese companies are already operating under similar restrictions.

RoHS is actually based on eliminating six substances in electrical and electronic equipment. Lead is considered the biggest offender, as it's typically found on the termination finishes of most lead-frame and array packages. The list also includes mercury, cadmium, hexavalent chromium, polybrominated biphenyls, and polybrominated diphenyl ethers. Each of these substances must be reduced below the concentration values proposed by the EU.

Several larger semiconductor companies expect to have RoHS-compliant lead-free packages covering virtually their complete line of IC products by year's end. But they still must contend with changing out virtually entire product inventories, assigning part numbers to the new devices, and communicating all of these changes in almost real time to their distributors, OEMs, and contract manufacturers.

A TRANSITION National says that 90% of its portfolio of 15,000 analog and mixed-signal ICs is already available in lead-free packages. "We're just going through a transition, a transition driven by customer demand. The directive is not affecting our product obsolescence plans," says National's Anderson.

While the RoHS directive received little attention at the Electronic Supply Chain Association's recent conference in San Jose, Calif., Anderson admits that everyone is nervous about how the new mandate will pan out. But he says the nervousness involves the duration of the transition, not the transition itself. "If we do a relatively rapid conversion and two years from now we're 100% lead-free, that's relatively painless," he says. "If it goes on for five or seven years, that could be extremely painful." (Some large OEMs, like Boeing Commercial Airplanes, require their suppliers to have an electronic-component management plan, and some of these plans cover five years.)

Intel announced in April that it will begin eliminating about 95% of the lead used in its processors and chip sets starting later this year. To ensure that its chips qualify under RoHS, Nasser Grayeli, Intel's vice president and director of assembly technology development, says the company has developed reference procedures on its own research assembly lines to aid customers in implementing lead-free technology.

Barry Marsh, vice president of product marketing at Actel Corp., says that not being RoHS-compliant by the July 2006 deadline could impact heavily on semiconductor manufacturers' business, resulting in an over-inventoried position and eventual premature product obsolescence. "If customers wait until the last minute to convert to compliant products and do not communicate requirements to the semiconductor manufacturers, there could also be a shortage of RoHS-complaint products," he says.

With OEMs now planning not years but several product generations ahead, such a shortage could present major problems to those engineers designing new products scheduled to reach consumer and commercial markets by the end of next year. It could also create a communications gap between chip suppliers and OEMs in developing product upgrades.

Marsh says that Actel has been working closely with its customers to get a better understanding of their customers' design needs. "We are already hearing from a small but growing number of customers, mainly in Japan, and are getting questions about our RoHS-compliant offerings and company direction."

Alan Bird, sales manager of U.K.-based specialty distributor Dionics plc, has studied the directive and its potential impact on the industry. He says that he still sees many companies, particularly in Europe, who are unprepared for RoHS (see the figure). "We can foresee the possibility of unprecedented levels of obsolescence as the various manufacturers review their obsolescence strategies in light of the new legislation," he says.

"The chip suppliers are ready in terms of qualifying the product, but they're not ready in that they can spec a component in a design that will be built in a year or two years from now," says PCNalert's Frescura. Anticipating RoHS, Fairchild Semiconductor signed on with PCNalert in April of this year to manage its product change notifications. PCNalert also took on Arrow Electronics' Global Information Business (GIB) as a new client this month, offering component information free to customers of Arrow's GIB. This followed almost immediately after Arrow disclosed that it was closing GIB as a separate business unit and that it was terminating several of its own Web-based component-obsolescence management services. Some chip suppliers are still working out their parts-numbering schemes for the lead-free components.

Most semiconductor suppliers will continue to support non-RoHS-compliant material for military and aerospace customers who can't use the RoHS-designated material due to reliability concerns, such as tin whiskers. This may also cause problems for chipmakers, requiring them to create and maintain an inventory of leaded devices, with a separate database of parts numbers for these chips.

OFFSHORE CONCERNS Another concern now evolving in Europe is the potential for counterfeiting RoHS parts. Dionics' Bird says that counterfeiting is most common when parts are under pressure in supply. "Clearly, that means high prices are being commanded," he says. "So typically what happens is an unscrupulous trader takes a part that looks similar, such as an Intel processor of lower speed or spec, and adds the code to the top surface to make it look like the required part."

In extreme cases, Bird says that the entire top marks may be removed and something completely different is printed in its place. "The result is the device won't work as intended," he says. "In an RoHS shortage situation, an old lead-containing part could be modified, which will fail any lead-detection audits later."

Dionics uses video microscopy against reference databases as a counterfeit-detection countermeasure. Paul Chinery, Dionics' marketing director, is a member of the European Development Committee of the Independent Distributors of Electronics Association (IDEA), which has been sharing information with government agencies in an effort to track and control counterfeiting of electronic components.

To date, Marsh says there haven't been many orders placed for RoHS-compliant devices. However, he says Actel is seeing lots of interest in the form surveys and questionnaires from Europe and Japan on RoHS-compliant packages compared to that of North American customers.

The Component Obsolescence Group was set up in the U.K. to offer advice to companies on the issue of obsolescence in the electronics industry. The British government has also partially funded the National Obsolescence Center to support those companies suffering from the commercial consequences of component obsolescence.

A survey conducted last summer by Dionics showed that 61% of companies have no roadmap in place for dealing with RoHS, and 41% haven't even read the directive. Dionics' Bird says those numbers haven't changed much since the survey. "Only 68% of organizations were confident they would be in a position to comply with the directive by July 2006," he says.

Bird believes the transition to lead-free chips and RoHS are somewhat analogous to the adoption of surface-mount (SMT) technology in the 1980s and early 1990s. The difference, he admits, is that the adoption of SMT was not a legislative requirement but a technological development.

Nevertheless, he sees the potential to create serious supply-chain imbalances as OEMs and contract manufacturers simultaneously convert to RoHS-compliant components. The end result will be an unprecedented demand for "lead-free" alternatives.

Because commercial electronics manufacturers tend to dominate the supply chain, it's assumed that RoHS-compliant parts will, in the long term, become the adopted standard. Yet all standards development may suffer just trying to keep up with the many changes. In fact, there are still aspects of the RoHS directive that are being discussed, and any significant changes to the directive will impact companies' abilities to comply with the directive.

OEMs are particularly wary. Dell, in a formal position statement, calls RoHS—in boldface type—"a significant challenge" for the electronics industry that "involves a complex set of technical attributes that have yet to be standardized."

The top-tier semiconductor manufacturers believe they may have a little wiggle room, because the actual conversion to lead-free usually happens late in the production process when the die is packaged. "It occurs so late," says National's Anderson, "that the inventory exposure to obsolescence is reasonably small if a fairly decent inventory profile is maintained for finished goods."

But they shouldn't cut it too close. Actel's Marsh says that as July 2006 approaches, it's going to be very important for chipmakers to monitor demand, as well as forecast, for both RoHS-compliant and non-RoHS-compliant devices. "If demand for both types is not monitored closely, it will be easy to over-build non-RoHS-compliant devices, possibly leaving chipmakers with excess inventory when demand decreases," he says.

In terms of actual transition costs, semiconductor manufacturers say they have experienced some early conversion fees, mostly related to R&D. But because these fees have been low, there are no plans to increase the price of lead-free components to customers.

Some hidden costs may exist, though, in maintaining inventories of different parts for OEMs and contract manufacturers. Also, as new processes are released, companies may have to spend additional time requalifying their products and notifying customers of any changes. On top of that, products are being continuously upgraded, which can add cost and obsolete the models they replace.

Material costs may become another issue as different alloys will likely be used to produce lead-free components. These could operate at different, probably higher, soldering temperatures than older, leaded versions of the same part. How will designers select the proper device for their application? With that in mind, PCNalert's Frescura says that when his company receives lead-free notices, it stores the soldering temperature with the notice.

Performance is another potential problem. Little data is currently available on how long these new parts will stay attached to boards and how lead-free devices might degrade over time. One intriguing question is if noncompliant components can be used for spares and repair functions beyond the 2006 RoHS deadline. Most industry companies are interpreting the directive to mean that it's just not possible to use the parts past the deadline.

According to RoHS, noncompliant spares can only be used in products "put on the market" prior to July 1, 2006. Products "put on the market" after that date must be repaired using compliant products. Noncompliant components don't necessarily have to be used in spares and repair applications, as RoHS-compliant components are predominantly backward-compatible.

But there is still some question about what "put on the market" means. The most recent proposed definition is, "placing on the market is the initial action of making a product available for the first time on the commodity market, with a view of distribution or use in the community." But that definition, like so many other issues, is subject to further clarification by the European Commission.

Need More Information?
Allen-Bradley Co.

American Electronic Resources

Arena Solutions Inc.


Dionics plc

Fairchild Semiconductor

4-Star Electronics

Intel Corp.

iTechnologies Inc.

Micro Circuit Engineering (MCE)

National Semiconductor


Semitronics Corp.

Texas Components

Texas Instruments

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