Every company that relies on a supply of electronic components has to manage component obsolescence: the inevitable day when the original manufacturer sets a date for end of life, that is, for production to cease. Sometimes the components are still up to date technically. Sometimes there is still an active demand for them. Despite that, the manufacturers decide to stop manufacturing them. Here’s why it happens.
Technological Advances
Components manufacturers must adapt and evolve constantly to survive. They are competing in the most competitive, multinational and volatile market in the world. It’s also very hard to predict: in 2020 not many people foresaw the massive surge in demand for chips that can run LLM AI models.
If manufacturers do not continually innovate, their competitors will eventually take all their customers. They must looking to improve all their components, all of the time. As soon as an new development offering a competitive advantage in the market is found, the new component replaces the old one.
Chip designers outsource their production to fabrication companies. This helps them benefit from the economies of scale, and state of the art technology, they offer. For every different production line there is a direct cost in materials and production costs, and an overhead cost. Chips designers can only fund a finite number of different production lines for different components. Therefore, as soon as a component becomes a low priority, production ceases.
Market Demand
When the real, or forecast demand for a component drops below the level required for profitability the manufacturers will announce it’s end of life. It may not be obsolete technologically, but manufacturers cannot afford to waste production capacity and logistics capacity on loss-making components. There may still be a significant market demand, but this is not necessarily enough to make the component’s continued production cost effective.
Manufacturing Constraints
As production processes evolve, maintaining the capability to produce older components becomes increasingly challenging and cost-prohibitive. Semiconductor fabrication plants, for instance, upgrade their facilities to use the latest technology, making it difficult to continue producing older generations of components. The cost of maintaining outdated equipment and processes often outweighs the benefits, leading to the phase-out of older components.
As we said earlier, chip designers outsource component fabrication. The biggest fabrication company is the Taiwan Semiconductor Manufacturing Company (TSMC). It has little interested in keeping obsolete production processes in use, to manufacturer relatively small number of components.
Regulatory Changes
Regulatory changes also drive obsolescence. Environmental regulations, such as the Restriction of Hazardous Substances (RoHS) directive, impose strict standards on the materials and chemicals used in electronic components. Components that do not comply with new regulations cannot be sold, so production ceases.
Supplier Decisions
Decisions made by component manufacturers, and events happening to them, may trigger component obsolescence. Mergers and acquisitions can lead to one company producing 2 very similar products. Rather than compete against itself, the less profitable product is made obsolete. Strategic decisions, such as exiting a specific market segment, also trigger obsolescence.
Our Role
Some of these triggers can be predicted, and some cannot. Some shortages can be avoided by good supply chain management and forward planning, and some cannot. For all the component shortages that cannot be foreseen, we can help. Here’s why we think we are the best solution to your component obsolescence problems. We can supply a vast range of different components. To see proof of what we can deliver, please try the component search facility on our home page.