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Standards have long been a way for the electronics industry to keep quality expectations high and keep trading partners in check. Companies certified in this or that area have some cachet in winning contracts over those that don't hold a similar badge of acceptance.
A similar development is now happening in a niche of the market that, for years, was considered the wild stepsister to the more broadly “accepted” sourcing channels. In the last few years, a number of standards, whitepapers, and certifications have been drafted specifically for independent distributors, with the aim of weeding out sketchy brokers of excess inventory or low-cost, hard-to-find components, from those that offer value-added supply chain services. The first standards initially focused on component inspection processes. (You can browse the Independent Distributors of Electronics Association (IDEA) site to get a sense of what's been targeted so far.)
This year, two elements are being added to the list, and they are directly related to new US legislation, the National Defense Authorization Act (NDAA), which is aimed at curbing the growing prevalence of counterfeit parts showing up in military and aerospace systems.
Last week, I wrote about the recently ratified IDEA-QMS-9090 standard, which outlines advanced quality management system requirements and establishes guidelines for independent distributors “procuring and distributing electronic products for both the high reliability and commercial markets,” according to IDEA. (See: Raising the Bar for Independent Distributors.)
The other standard worth mentioning in the same breath is the SAE International G-19 committee's AS6081, which will provide guidance specifically for military and aerospace distributors, which will have to comply with terms of the NDAA.
The AS6081, will:
- …prescribe counterfeit parts avoidance requirements directly applicable to distributors. The intent of the document is to describe a program to establish and maintain certified distributors of electronic components whose regular use of anti-counterfeit process controls and requirements (in their purchasing and supplying operations) is designed to ensure delivery of authentic products that meet original component manufacturer specification.
The standard has gone through a second round of balloting, and the committee is meeting regularly to refine draft revisions and get it ready to move it through final approval. Ratification and public release of AS6081 could be two or three months away, said Phil Zulueta, a consultant and SAE G-19 committee chairman. He added that once AS6081 is released, Anne Poncheri, one of the G-19 members, will conduct a course to help companies come up to speed.
The image below provides an AS6081 overview:
As I mentioned in the previous blog cited above, independent distributors are involved at various levels, and there has been a lot of cross-industry interest in AS6081. Besides the fact that IDEA-QMS-9090 extends AS6081 requirements beyond aerospace and defense to the commercial sector, IDEA executive director Debra Eggeman is a member of SAE's G-19 Counterfeit Electronic Parts Committee. And, while AS6081 certification is not a requirement right now for IDEA-QMS-9090 certification, Eggeman says it will likely be required in a future IDEA standard — the IDEA-QMS-9091, “Quality Management System Standard for Independent Distributors of Electronics Association Members Providing High Reliability Parts.”
Now that we've covered a few of the ways independent distributors are making quality a top priority, I'd love to hear from OEMs and contract manufacturers about the best practices they are implementing with independent distributors. Please post your comments below.
These small distributors work very hard and they have very good collection of parts. Many time you need those parts and need those soonest at ready to pay premium price. So this new hinderance will not have much impact and it will be business as ususal.
Smaller outfits are well-advised to meet one or more standards for certification. This is a sure path to recognition that can round out their marketing efforts. On the flip side, standards that don't impose too much of a barrier to entry can stimulate an industry and benefit the economy by giving clear benchmarks to smaller industry players.
Bolaji: DRAM is a product that always seems to be in oversupply or undersupply. You outline most of the reasons for that. You'd think that after enough boom and bust cycles, DRAM makers would move toward some kind of self-regulation (although that may border on anti-trust–not sure.) At any rate, I think it will happen exactly as you and IHS predict: the relief will be short lived and there will be no actual progress made on moving toward a more rational response to demand.
After existing for so long without standards–meaning written, not standards of conduct–the independents are moving full speed ahead with these efforts. It takes a lot of work–just ask the IPC or the IEEE–but it is a leap forward for the industry.
You're probably right, but I think there is hope based on the fact that the industry seems to be maturing. I don't think we will see any new entrants – the cost barrier for a new state of the art fab, or even adding leading edge capacity is high. So we will see even more consolidation of the few real players left. After Samsung, Hynix, and now Micron the rest of the industry combined doesn't have much market share. And I think that DRAM demand is more predictable than in the past since PCs are also a muturing industry.
Standards are definitely welcome and they will help the companies to raise the bar and to find any counterfeits at early stage. Hopefully this gives more strength to independent distributors but how do they tackle over heads.
Another dramatic blow signifying the downturn of the Japanese semiconductor industry. An overview of the cultural angle can be found here.
“…The market suffers from too many structural problems…”
I am fully aligned; in my eyes, one of the problems is related to a real alternative, in terms of material, for producing DRAM in allowing savings and reaction to up & down market. Despite several years spent in DRAM light-speed replacement, producers are still away for evolving components towards that trend. It seems like green for oil; some good steps have been done, of course, but when will be available a full green-engine for cars?
And, while AS6081 certification is not a requirement right now for IDEA-QMS-9090 c ertification, Eggeman says it will likely be required in a future IDEA standard — the IDEA-QMS-9091
@Jennifer, thanks for the post. Its really good to see that new laws are being framed to stop the counterfeits at early stage. Just curious to know, usually how long does it take to implement the law ? When will see industry adopting IDEA-QMS-9091 standards ?
The memory market is so much depend on all kinds of electronic products made in the over the world. So any major problem with certain class of products would hamper the sales of DRAM. At the same time DRAM is more like a commodity item these days just lika diode/mosfet. There is not much innovation or any new features are added to these products.
_hm – Actually I think it could up-the-notch of “business as usual” and provide more accountability for those in this sector.
stochastic excursion – agreed… idea of setting milestones and benchmarking for big and small companies is way to benefit teh whole industry.
Barbara – It does take a lot of work, and hopefully will be well worth the effort.
elctronx_lyf – You're right….Hopefully it will raise the bar.
tirlapur – I'm not sure about the timing of the IDEA-QM-9091. I'd recommend keeping an eye on their website, http://www.idofea.org/.
mfb: The DRAM market is exactly like oil. In fact, ENRON at one point considered entering the DRAM market because of that similarity. That scared the pants off of the online trading sites that had been springing up during the dotcom boom. It wasn't too long after that ENRON fell apart–but at least you couldn't blame DRAM for that!
I have heard some stories about these events in the early 2000, a decade is gone and if you google just for a bit some keys as “trading derivates”, the engine search provides several reports from auditors related to what happened. Then once again, the sector is impacted by structural problems, who knows if exists a real will to solve them.
Demand for high performance devices (mobile) with relative to: 1 – Low power consumption 2 – Higher memory capacity 3 – Speed ( frequency clocks at GHz/THz) are the major factors. And we need to blame market for that.
@Jennifer, thanks for sharing the link. I will keep an eye on the websites update.
Your welcome.
I wonder what market share Elpida had as this will tell us a lot about the impact its bankruptcy is likely to have.
What do you think are the problems with standarization? Do you think that innovation is going to be limited due to this? There shouldn't be much innovation with parts, it either work or they dont but there's some room for efficiency.
Any1,
Barbara points out some very good reasons why there won't be consolidation on the level you want(and will make the industry sustainable) here.
Anti-Trust actions are a serious barrier to futher consolidation in any industry(incl.the DRAM industry).
In the name of Protecting consumers;Governments set up a serious Roadblock to companies setting up Sustainable Businesses.
There is something else that nobody here seems to mention-The problem of Safeguarding Jobs.
The chances of a production cut are minimal as long as Short-term populism dominate the way Politicians think and act.
Regards
Ashish.
Barbara,
Now this is fascinating.
I had no clue that ENRON was about to enter this Business too before they went Bust.
That's whats so fascinating about this Site-You learn something new every single day.
But that is the crux of the argument is'nt it? If it is a Commodity then it should trade like one.
Regards
Ashish.
Bolaji,
You raise some interesting points regarding the DRAM over-supply situation.
But the problem is not just restricted to DRAM's.Its one of excessive Global Over-production of almost all Manufactured Items brought on by Cheap Credit doled out by Global Central Banks.
Think about it practically,if an American Citizen were Getting say 5%-10% Interest in your Savings Bank Account today;would you speculate on Assets like Commodities,etc?
No you would'nt.
Exactly the same situation exists with the Chinese,Japanese and Taiwanese(where these DRAM guys are based).
Interest Rates are way too low there(Below the real rate of Inflation);which forces everybody to speculate;which led most Chinese to think that Commodities can only go one way-UP.
And that speculative bubble is now bursting.
http://www.reuters.com/article/2012/05/21/china-coal-defaults-idUSL4E8GL1BS20120521
You might say this situation does not explain the periodic Booms and Bursts of this industry since the 1990s.
In fact it does,Following first the Black friday disaster,then the Asian Financial crisis ,then the LTCM bust,then the Dotcom Bust,Then the Housing Bubble bust-The US Federal Reserve has always cut Interest Rates and Pumped in more and more Liquidity to pump up the Global Economy;This has led directly to Speculative Bubbles of Bigger and Bigger amplitude.
Don't worry its not just the US Federal Reserve-the ECB,the BOJ,the BoE,the PBOC everybody's doing it.
Think about it rationally;if these Electronic Devices were priced fairly(and not be skewed by all kinds of incentives and Cheap Loans) ;How many people would be able to afford to change their Electronic Devices every Year/Two Years?
Regards
Ashish.
Well I feel that no one will wonder as such in a big manner since there is a huge economic downturn everywhere and bankruptacy has become a common factor for not only small companies but for the bigger ones as well. I think the bigger ones are suffering more than the smaller ones because their expenditure is far more higher than the small or medium scaled ones.
I've suggested before the DRAM, in fact memory industry generally, needs to coordinate into an association for the specific purpose of educating government oversight on the need for a DRAM and perhaps NAND Flash price floors. At the trailing edge of the CMOS cost curve moving to disruptive memory technologies, materials and structures, something has got to offset the price of development. Agreement on price floor(s) can offset development investment while deterring the collusive price fix by recognizing the actual economics of a sustainable business. And regardless of the supply that results because it may still be excessive can stabilize procurement into future time. This is not to suggest that end buyers should pay more. End buyers should pay no more than an adequate competitive profit for components that support industry sustainability and reinvention required through a phase transition. Mike Bruzzone, Camp Marketing
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It is interesting to see that the DRAM market is fluctuating like the oil market and the volatility makes them look similar. I wonder what is the reason behind this behavior though. Is it because there's a high monopoly of a few regions that dominate in the production?
Mike,
I like your Suggestions-Price controls,et all.
Problem is we Live in a Dog Eat Dog world today and even if you manage to Get the Western Oriented Manufacturers in on this-[Japanese,Korean,European ,Mexican and American];
Can you guarantee that the Chinese, Taiwanese,Thai,Malay, Singaporeans,Indians and Phillipinines will follow suit???
You can't.
This is because these guys depend on these companies for critical manufacturing Jobs.
If you need a clear case,I will illustrate what is happening in the Auto industry in Europe.Manufacturers based primarily in France are Struggling big-time.
But the moment they threaten to cut production(and thus cut Jobs) ;the CEOs get summoned by the President of France and lectured on the Social Responsibility of preserving jobs in the France.
We have tremendous over-capacity in most industries Globally-Primarily because of Cheap Credit(which I had alluded to earlier in this post).
But the only way for this Mal-investment to clear it out is to allow the weaker firms to declare bankruptcy and leave the market;Unfortunately u cant do that in China-In the name of preserving social Stability China believes in just sweeping the problems under the rug!!!
This is why the biggest blowout this time around will come from China.
Its just a matter of time.
Regards
Ashish.
Nimantha,
Typical Bankruptcy Laws do not get followed in China.
China believes in Sweeping its problems under a Rug.That's why the eventual Blowout and Recession coming out of China will be even bigger and more massive than what anybody can expect today.
As for you thinking that Larger companies are more susceptible;I Disagree its going to be that those companies which are the most Inflexible and don't have Liquid Assets on Balance Sheets that will struggle to survive in the coming Recession.
I thought I will share an interesting case with you ,I was recently at a Conference which was Hosted by a Top 5 IT Vendor and a Top 5 IT Analyst firm.
The IT Analyst firm was Super Gung-Ho on Global IT Spending for the next Year-7%(based on the fact that IT spending grew by more than 5% in 2010 and 2011!!!);not just that he said that the bulk(70%) of IT Spending will come from Emerging Economies-Particularly the BRICS!!!And by 2020,Total IT spending will be double what it is today!!!
I asked him,Do you know that -Australia,China,India and Brazil are slowing very sharply and so what happens if Spending gets cut by 50%?
He was like,”Impossible” IT spending cannot slowdown .
Then I asked him-Did you forget what Happened in 2008-9???
He said,no Problem-Governments will continue to spend Money-I told Him-Dude,Govts are all Bankrupt Globally,Where is the Money gonna come from????
After all you can't eat IT!!!
He had no answers to any of my Questions.
regards
Ashish.
Taimoor,
Its because of Excessive Liquidity dumped by Global Central Banks.
I already explained that previously HERE
http://www.ebnonline.com/messages.asp?piddl_msgthreadid=249821&piddl_msgid=649859#msg_649859
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Well thats why Im saying you should have a common law and governed and monitored by a centralized world bank. That will make things less confusing.