Front End I Electronic Components Supply Network Playing “Whac-A-Mole”…
Invented in 1975 by Kazuo Yamada the popular arcade and children’s game “Whac-A-Mole”, challenges players to strike ‘moles’ as they emerge from their holes quickly and with suffi cient force to make them retreat. At fi rst the moles emerge singly and fairly slowly but their numbers rapidly increase whilst the time available to ‘whac ‘em’ decreases, making it progressively harder for the player to score. In this article Adam Fletcher, Chairman of the Electronic Components Supply Network (ecsn) suggests that the current situation in the UK electronic components is much like the “Whac-A-Mole” game and points to a new ‘mole’ that players in our industry will need to deal with…
A
cross the global electronic components supply network ecsn members and their customers are engaged in a commercial game
of “Whac-A-Mole”: New challenges (moles) are popping up all the time and just when you think you have dealt with one, another appears. In truth it was always thus in the electronic components industry but currently challenges are emerging surprisingly quickly, are often interconnected and just as in the game, it’s often impossible for players to satisfactorily deal with them all.
Current ‘moles’
In previous articles I have tried to highlight emerging challenges for readers of CIE by discussing topics such as Brexit, Covid-19, extending manufacturer lead-times, component price increases, trade wars, new legislation, mergers & acquisitions, the threat posed by counterfeit components, international-to-last-mile logistics issues etc. To this list I could add the recent blocking of the Suez Canal, the fi re at a Renesas foundry in Japan, the electricity ‘outages’ in Texas that brought output at Infi neon, NXP, and Samsung wafer foundries to a standstill, and the lack of regional investment in semiconductor manufacturing capacity. However, there is another challenge threatening to emerge near the top of the list …
Rare earth elements / metals… Rare Earth Elements (REE) / metals are widely used in the production of electronic components particularly in magnets, lasers, batteries, fuel cells, LEDs, semiconductors etc. In 2017 China accounted for 81% of the global supply of REE materials, while Australia occupied second place with a mere 15% market share. The global demand for REE
10 April 2021
is growing due to increased demand for renewable energy, smartphones and electric vehicles but recycling rates are currently low because REEs are generally difficult and uneconomic to recover from the wide variety of finished products in which they are used. Following consolidation of the REE producers under its control, the Chinese government has imposed production and export quotas, claiming the need to “reduce over exploitation”. In 2010 these actions triggered a World Trade Organisation (WTO) lawsuit in which the US, EU and Japan appealed against the new export restrictions. Four years later the WTO ruled that China had broken the free trade agreements and stated, "the overall effect of the foreign and domestic restrictions is to encourage domestic extraction and secure preferential use of [REE] materials by Chinese manufacturers." In response China agreed to withdraw the quotas but said, “it would need some time to do so”. Yeah right! In 2019 China’s global market share of REE was estimated to have increased to nearer to 85% and for many REEs China now controls up to 95% of the global market despite a significant increase in mining investment in the US and Australia. Concerns are also mounting that the ongoing trade war between the US and China may further exacerbate the supply situation. No surprise then that the market price for all Rare Earth Elements and Metals is continuing to rise.
More precious metals – Impact on thick fi lm resistors…
Thick Film Chip Resistors (TFCRs) are ubiquitous components used in the design and manufacture of all electronic products – a typical mobile phone for example uses many hundreds – so they are produced in unbelievable volumes measured in multi- trillions p.a. Described as “Merchant Market Commodity Products” TFCRs are traded at “spot” prices determined by market supply
Components in Electronics
and demand. Ruthenium is essential in the manufacture of TFCRs. This rare transition metal is a minor constituent of the platinum ore predominantly mined in South Africa. In 2017 the annual production of Ruthenium was estimated to be 36 million tonnes of which almost 45% was destined for use in electronics applications. Of this, an estimated >85% was used as ruthenium dioxide in the manufacture of TFCRs. Many of the companies that mine platinum in South Africa are today under Chinese control and trade disputes are ongoing. In 2017 the market price of Ruthenium increased by 60% and held firm for three years before jumping again in March ’21, this time by circa 22%. The price is currently holding firm but looks likely to increase in the not too distant future. Currently there is no viable alternative to Ruthenium at anywhere close to the existing price points.
There are also significant “barriers-to- entry” in the manufacture of TFCRs, principal among which are the incremental economies of scale required in production and the constant fine process tuning necessary to maintain or improve performance and further reduce the physical size. When coupled with an unacceptably low return on capital employed (ROCE) these factors effectively discourage new investment in TFCR manufacturing capacity. The existing ‘captive manufacturers’ of TFCRs are primarily based in China and Japan but due to aggressive competition they have little control over their eventual selling prices. It’s essential however that their revenues from the manufacture of these devices keeps pace with increases in raw material costs or they risk bankruptcy. Market mayhem could result if just one TFCR manufacturer becomes insolvent and ceases production. As I have suggested in previous articles for CIE, when supply and demand are imbalanced it’s not the expensive Super “A” class items like single sourced
semiconductors that are likely to cause customer line-stops, it’s the multitude of very low priced, high volume “C” class commodity products that procurement professionals often take for granted.
The good news
Across the electronic components supply network suppliers and customers are collaborating in a bid to work through all the current and emerging challenges, confirming that supply difficulties can be mitigated by effective engagement with partners both up and down the supply network. Sharing business intelligence in this way can make an effective contribution to the performance of an organisation. Unlike a “Whac-A-Mole” game the process of constant challenges in the electronic components market will never come to an end. I do however predict that the severity of some of the supply and demand challenges will decrease into 2H’21 before becoming more acute in 1H’22. Everything really depends on how strong the underlying economic growth turns out to be, and that particular ‘mole’ has yet to appear.
For information
Adam Fletcher is Chairman of the Electronic Components Supply Network (ecsn), a business association established in 1970 that today offers support to all organisations with an interest in electronic components throughout their entire lifecycle. He is also Chairman of the International Distribution of Electronics Association (IDEA), an association of individual country electronic components associations whose objective is to arrive at and share best industry practice.
ecsn-uk.org
www.cieonline.co.uk
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54
