Buyers have options with component obsolescence

James Carbone, contributing editor

The rate of component obsolescence has increased over the last 15 years, but component manufacturers are doing a better job of notifying buyers when they plan to discontinue a part.

Component obsolescence is an issue that electronics buyers will always have to manage, but the good news is with diligence and careful planning buyers can mitigate the impact that end-of- life parts have on their companies.

Researchers say that obsolescence is becoming more of a challenge because semiconductor manufacturers are discontinuing production of chips at a faster rate than in the past. For instance, in the year 2000 component manufacturers issued 1,164 EOL or product discontinuance notices, according to researcher IHS Technology. By 2014, the number of such notices soared to 5,506 notices. The good news is in the short term the number of notices declined to 4,327 in 2016 and IHS forecasts about 4,270 notices will be issued in 2017.

The increase in the number of EOL notices over the last 17 years can be attributed to technology changes, government regulations, economic slowdowns and catastrophic events such as earthquakes and severe floods that knocked out electronics production.

“For instance, in 2006 there was a spike in EOL notices because of the European Union’s Restriction of Hazardous Substances (RoHS) law which went into effect,” said Gregory Wood, director, parts content for IHS. RoHS restricted the use of lead, mercury, cadmium and several other substances in electronics equipment and components which resulted in semiconductor and other component manufacturers discontinuing parts that contained those substances.

“We also had EOL spikes in 2010 and then in 2013 related to changes in REACH legislation,” said Wood. The Registration, Evaluation, Authorization and Restriction of Chemicals law requires companies manufacturing or importing chemical substances into the European Union in quantities of one ton or more per year to register these substances with the European Chemicals Agency. The regulation requires companies to communicate information on chemicals up and down the supply chain in an effort to ensure that manufacturers and customers are aware of information relating to health and safety of the products supplied.

There was also an increase in EOL notices because of the banking crisis in 2008 and 2009 as the industry “probably overreacted a little bit and obsoleted a lot of product,” said Wood.

“You also see a lot more end-of-life activity when the semiconductor industry is not doing well,” he said. “If chip manufacturers are not selling as many parts you will see more obsoleting of components as they shut down less profitable lines,” Wood said.

The increase in obsolescence impacts some industries more than others. Industries with short product lifecycles, such as smart phones, are not impacted as much as industries with longer lifecycles such as defense and aerospace, medical and industrial equipment. Products in those industries can be built for 20 or more years and outlast the lifecycles of some of the components that the products use.

Prone toward obsolescence
While certain industries are more impacted by obsolescence, so are certain product families. For instance, memory ICs and programmable logic chips have shorter lifecycles because technology with those products changes quickly. With memory, the architectures and density changes every several years and memory chipmakers devote more production to the newer densities and architectures because they are most in demand.

Wood said while obsolescence is an ongoing challenge for electronics buyers, there are a number of strategies that can be employed to reduce the risk that EOL parts adversely impact their companies’ production.

For example, buyers involved in design activity at their companies need to encourage design teams to use technologies and parts that have been well-established in the industry and have very long projected lifecycles, according to Wood.

He added buyers also need to “make sure to monitor very closely end-of-life notices and look for doing last-time buys if a critical component comes up with a last-time purchase date,” said Wood.

Buying for future demand
Some buyers will look to authorized distributors for help monitoring EOL notices and some distributors also do last-time buys of components after a manufacturer issues an EOL notice.

“For the last 23 plus years Arrow has systematically invested in end-of-life parts when our suppliers close their factories,” said Tyler Moore, director, supply assurance for Arrow Electronics. “We are essentially buying for future demand before they close the factory.”

“Typically, our suppliers give customers one year to decide what if they need to make a lifetime buy and another year to take delivery on it,” said Tyler Moore, director supply assurance for Arrow Electronics

He said that Arrow does not make a last-time buy every time an EOL notice is issued. “We do it when the data says it makes sense,” said Moore. “A lot of parts have substitutes so you don’t really need to do” a last-time buy for them, he said. For parts that don’t have substitutes “we will go in and make an investment so customers have those parts available for five or 10 years.”

He said that Arrow has nitrogen storage capability, which is important because many customers are worried about the long-term degradation of parts that need to be stored for a long time. “Storing them in an environment like that is really helpful,” said Moore. Arrow stores both finished semiconductors and wafers for customers.

Nitrogen storage “grew out of our military business. Those customers often use parts much longer than many manufacturers are willing to build them,” he said. “It was a necessity for customers.”

Besides storing obsolete parts, Arrow helps customers manage obsolescence. It sends customers EOL notices when they are issued for parts that customers purchase from Arrow.

Moore said in most cases, suppliers give plenty of notice when they decide to cease manufacturing a part. When a supplier issues an EOL notice, “typically our suppliers give customers one year to decide if they need to make a life-time buy and another year to take delivery on it,” said Moore. “If they are getting those notifications in a disciplined fashion they hopefully will have enough time to deal with the problem,” he said.

Buying from independents
Wood noted that many buyers will also look for obsolete parts from independent distributors. “Of course, if you do that you have to be a little bit careful about the proper testing because you don’t want to buy counterfeit or substandard parts,” said Wood.

Independent distributors have a long history of being sources for obsolete parts.

“Obsolescence is still a big part of most independent distributors business,” said Paul Romano, chief operating officer for Fusion Worldwide, based in Boston.

“Obsolete parts lend themselves perfectly to what we do. They are parts that just aren’t available from regular distribution or the manufacturer,” said Romano. “By their nature obsolescence is a big part of independent distribution business.”

Romano said component obsolescence can ebb and flow and is “driven by a number of factors” including natural disasters such as earthquakes, tsunamis and flooding, which knock out production of electronic components. When such events happen, component manufacturers may decide not to bring back production of certain components that may not be as profitable as they were in the past.

As with authorized distributors, some buyers look to independent distributors for both obsolete parts and for help in managing obsolescence issues.

“They look for help managing their life-time buys,” said Romano. “We may go out and procure the inventory, bring it in and ship it to them as they need it.”

He said some customers may not want to keep the inventory at their facility. “We can manage it at our facility or we keep it in a cage on their shop floor. They can have it right there and pull the products as they are needed,” said Romano.

Carleton Dufoe, CEO of independent distributor NewPower Worldwide, based in Nashua, NH, said customers also come to his company for assistance with obsolete parts and with last time buys.

“Sometimes they want us to do the last time, but they don’t want to guarantee that they will take products,” said Dufoe. “This is not an equitable solution.”

He said in some cases NewPower may have two or three customers that use the same obsolete part. NewPower can combine the expected usage requirements of the customers and do a life-time buy for them. If the customer usage is less than what the customers forecast, “we can give them a solution to resell the product before the product has decreased a lot” in value, said Dufoe.

“Some buyers “exhaust all avenues before coming to Lansdale. Some find us purely by luck, but most who have been in this business for any length of time know the product lines that Lansdale supports and come to us when these products are needed,” said Lee Mathiesen, operations manager at Lansdale

Obsolete components are also part of Smith and Associates’ business, said Todd Burke, vice president of business development for the Houston-based independent distributor. “Folks come to us for obsolete parts, shortages and long lead time components,” said Burke.

Managing inventory of old parts
He said many customers come to Smith for help in managing inventory of obsolete parts. Burke noted that defense and aerospace equipment have very long lifecycles and parts used in those systems may need to be stored for 15 or 20 years.

Customers come to Smith not only for the sourcing of parts but for the logistics and warehousing of the parts. “We will take the part, keep it in an electro-static discharge, humidity and temperature-controlled environment. We’ll put it in nitrogen storage if customers want that. It gives them security that the parts will be good if they are needed years from now,” said Burke.

He said incredibly, some customers “store parts in file cabinets or gun safes. That is just not the proper way to store components.”

Smith will do a lifetime buy for customers depending on the customer and the part that is going obsolete. “We get requests for life-time buys quite often. We do them, but it’s more of a value add with a customer,” said Burke. “It is for companies that we are deeply engaged with and have a good long-term standing working relationship.”

He noted that it is one thing for a distributor to hold inventory for 90 or 120 days, “but another thing to tie up millions of dollars of capital for an indefinite amount of time.”

The aftermarket connection
While buyers often can find obsolete parts from distributors, there are times when the availability of EOL components is very limited if not nonexistent. In such cases, many electronics companies turn to aftermarket component manufacturers. “If you have some type of core device that goes obsolete and there are no replacements then you can look at going to aftermarket parts manufacturers such as Lansdale Semiconductor or Rochester Electronics,” said Wood. Such companies acquire the manufacturing rights of parts and build them to the same specifications as the original component manufacturer.

Lansdale, based in Phoenix, Ariz., manufactures semiconductors for the telecommunications, defense and aerospace, and wireless communications industries.

“Last-time buys are for companies that we are deeply engaged with and have a good long-term standing working relationship with,” said Todd Burke, vice president of business development for Smith and Associates

Lansdale manufactures more than 3,000 semiconductors in the original package which were originally built by chipmakers such as AMD, Fairchild, Freescale Semiconductor, Harris, Intel, Motorola, National, Philips and Raytheon. The aftermarket manufacturer produces a variety of obsolete semiconductors, including linear, analog, memory and CMOS products.

“What we see is that TTL digital logic devices and PROMs (programmable read-only memory) are our major sellers today, but it has changed year to year,” said Lee Mathiesen, operations manager at Lansdale. “Sometimes it has been analog in industrial applications, sometimes HTL for nuclear power stations, sometimes TTL for the P-3 Orion aircraft.”

Lansdale’s customers range from large OEMs to small subsystem and board manufacturers.

He said it is not just military OEMs that turn to Lansdale for obsolete parts. “Other high-reliability industries such as power generation and telecommunications have been going down the same path as the military for years,” said Mathiesen. “For instance, one of Lansdale’s old product lines which was originally designed in the 1960s is still used in nuclear power stations.”

He said some buyers “exhaust all avenues before coming to Lansdale. “Some find us purely by luck, but most who have been in this business for any length of time know the product lines that Lansdale supports and come to us when these products are needed.”

Because much of Lansdale business is with military OEMs, Mathiesen said recent changes in the DFARS (Defense Federal Acquisition Regulation Supplement) that require military OEMs to buy from original component manufacturers, authorized aftermarket manufacturers and authorized distributors mean that “Lansdale’s role as an authorized aftermarket manufacturer will become even more important to the OEMs.”

The role may also be enhanced because OCMs are discontinuing more part numbers per year for a variety of reasons, including manufacturing changes, changes in die dimensions and other technology changes.