January 8, 2014 
Editor's Note 
BarbaraJorgensenLast month's article about the Xilinx-Flextronics lawsuit prompted a lot of discussion online and over the phone. With credit to EPS readers, a few misconceptions were corrected: although Xilinx products are programmed to customer specs, the parts are not necessarily proprietary--they can be wiped and reprogrammed. (See: The Multiple Dangers of Component Resale.) As such, the parts have widespread use -- and appeal -- in the open market. It also appears that the sale between Flextronics and the end customer in this case--Checkpoint Systems Inc. --did not involve a distribution channel: the sale was direct from the EMS to Checkpoint. To quote my 16-year-old: "My bad." The issues around the case are unchanged, though: the right to resell electronics components and charges of counterfeiting. Flex is alleged to have remarked Xilinx parts to reflect a higher-cost product.

Some readers have suggested Flex was acting like a distributor in this case by selling parts at a profit. EMS companies can order components in such volumes that they get a preferential price. By reselling parts at a profit, an EMS is actually competing against distributors and possibly its own suppliers. It's unlikely suppliers will end the preferential pricing or cut off sales, though, because EMS companies are also their biggest customers.


The more egregious issue is of course counterfeiting. Suppliers and distributors have been jumping through hoops to protect customers like Flextronics from counterfeit components. The channel has invested in processes, equipment and technology to thwart counterfeiting. They have pointed fingers at one another as the "cause" of the problem. The idea of an OEM or EMS being directly involved in counterfeiting is almost unthinkable. As nothing has been proven yet, I'll hold off on the implications: We'll know more as the case unwinds.

The channel seems to be looking forward to 2014. Distributors expect demand to pick up, and there's evidence that it will. (See Distribution Bullish on 2013.) U.S.-based manufacturers are predicting revenue growth the first half of 2014 and even better performance in the second half. If prices remain stable, supply is steady and demand doesn't take a precipitous dip, it should be a good year. My colleague Bolaji Ojo -- as always -- adds some high-level perspective to the economic outlook in The Perils of a Low-Growth Economy. And our thrid colleague, Gina Roos, take a look at how the Internet of Things (IoT) will impact the electronics supply chain in Suppliers Eye IoT.


We at EPS wish all a happy, healthy and profitable New Year. And let us know what you think about the market, our coverage or the big issues of 2014 at editors@epsnewsonline.com.



Barbara Jorgensen

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