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As the global semiconductor industry breaks ground on dozens of new wafer factories, the big publicity has also brought some "side effects", which has troubled chip manufacturers: their large number of semiconductor products are at risk of outdated. Some industry insiders pointed out that the current supply chain dynamics may lead to an imbalance in demand for a large number of scrapped semiconductors (EOLs).
Generally speaking, when the demand and profit of a certain model of component production line begin to decline, the manufacturer will gradually stop production, and after providing the customer with the last purchase, the production of the model will be completely terminated, and the quantity of the last production is mainly based on the customer's prediction.
But this type of component production risk is extremely high. From the manufacturer's perspective, the equipment has the costs of initial capital expenditure, followed by long-term storage and warehousing costs . And manufacturers also face the risk that these parts may never be sold out. Only by distributors can they support products that customers need for a longer life cycle through EOL inventory terms.
According to IHS Markit data, about 50,000 electronic component devices worldwide have been phased out in the past decade. When scrapped semiconductor production equipment remains, they are usually sold to the open market, increasing the risk of unethical institutions re-registration or tampering with the equipment.
But there are also semiconductor manufacturers that authorize professional distributors to handle outdated products, which often make last purchases; to receive chip manufacturers' IP, mask and chips, and remanufacturing equipment for end customers. Many dealers from the open market can prove the source of these components or test them to prove their authenticity.
Experts warn that many chips produced today may not have a phase-out period. "First of all, you have a capacity issue - the foundry is booked for three years, so suppliers are developing their most profitable production lines and completing long-term orders," said a component solution engineer from the industry. "With the new fabs going online, manufacturers will not buy old wafer equipment. The new foundry will produce new parts; because the old production lines are low profits, manufacturers will no longer support the production of the old production lines." The engineer added that some chip production lines have slowed due to the COVID-19 pandemic and global labor shortage. "The supplier will not start the production line for the last purchase. So, it is possible that the model in your hand is outdated."
In addition, the packaging update of the chip is also a problem. For example, wire bonding chips are also very low in capacity, and wire bonding uses precious metals such as gold, aluminum and copper, and prices are rising. “Anything that uses wire bonding to will be under scrutiny,” the engineer said. “The supplier may buy parts, but will they glue and package them? We may see a drop in demand for some packages.” Suppliers also have the option to use a single package type, rather than multiple. "Manufacturers don't always have time to reprocess production lines for different packaging." The issue of outdated models of
components is not new, because the electronic devices at the terminal are always living up to the fittest. The outdated problem of components is an ongoing problem for OEM and EMS suppliers who want to support the entire life cycle of their products. Do manufacturers directly purchase outdated components and occupy funds? What if the components cannot be used? At the same time, redesigning legacy products will consume engineering resources and incur various related costs.
And inventory management has always been a popular option in the electronics industry because OEM and EMS suppliers do not want to store parts. Despite the long-term shortage of semiconductors, there are few signs that OEMs and EMSs will stock up when they can get stock.In order to reduce supply chain risks, manufacturers sometimes take the initiative to buy in advance, but the concept of precise procurement still dominates the industry.
Industry insiders pointed out that the delivery time of popular chips is still as high as 60 weeks, and it is an optimistic guess. Inventory and pricing trend information can also help buyers decide whether they should buy when inventory is available or wait for future price drops. Arrow and Avnet reported on a recent earnings call that they were able to support their customers despite supply constraints. "The supply chain is responsible for handling long-term orders." For long-term orders, the equipment will be shipped from the distributor immediately as soon as it is purchased.
At the same time, market researchers now say that although overall semiconductors are still sellers' market , the prices of some components have fallen.
