An engineer's perspective on semiconductor industry consolidation

Supplier consolidation is rarely good news when viewed from an engineer's perspective because the change it engenders is almost certainly not in the short term interests of their organisation. Possible negativity includes the time and administrative cost of reviewing an alternative device, amending the internal approved supplier list and/or undertaking an expensive product re-design in order to replace a component that may no longer be available, to say nothing of the uncertainty occasioned by longer term changes in the competitive environment.

'Commodity’ v ‘Proprietary'
Most semiconductor products can be divided into two groups: ‘Commodity’ – parts available from multiple manufacturers that are ‘form, fit and function’ compatible, and ‘Proprietary' – parts only produced by one or possibly two manufacturers. The typical customer of the global electronic components supply network uses a combination of products from both groups in the equipment they produce, some because the device enables the desired functionality to be achieved at a sensible price and others because there is simply no viable alternative.

Over the past 20 years the proportion of ‘Commodity’ products available in the market has been rapidly declining, whilst the range of products described as ‘Proprietary’ has risen. This is primarily due to increased integration of features that reduce the total number of components on the board, thereby reducing manufacturing cost and improving reliability.

Consolidation in the semiconductor industry impacts both ‘Commodity’ and ‘Proprietary’ product groups. It can reduce competition in the 'Commodity' product group, which may not be entirely negative as the pricing stability it engenders often improves long term availability.

Customer design engineers often use specific features of a semiconductor device's specification within their design. Some of these are obvious, others are often more subtle. In digital designs certainty of timing is often critical but any changes in a device's timing parameters can generally be accommodated by modifications to the firmware. In contrast analogue design engineers often rely on much more subtle characteristics of the semiconductor device: How it's specified and/or how it's expected to operate under given the unique conditions within their design..Any changes in the process technology or foundry procedures made by the consolidated semiconductor manufacturer can change device tolerances and whilst the device may continue to meet the data sheet specification the subtle elements of the design are often affected and may cause significant problems in the customer's product.

Different geographic market needs
Semiconductor manufacturers are today having to support a global customer base that has very diverse lifecycle and volume needs. The large but highly fragmented European ‘Industrial’ sector (which includes medical, instrumentation and test equipment) comprises 1,000s of small medium sized customers (five to 250 employees) who typically manufacture and sell eight to ten end products in volumes of 100s to 30,000 units per annum and who only develop one or two new products each year. These organisations demand support over long product lifecycles, ten years plus being fairly normal, but are recognised within the electronic components supply network as good solid customers.

Component selection
The selection of which electronic components to design-in is decided primarily by the customer's professional design engineering team, guided by their procurement and quality assurance personnel and policies. The team is required to professionally assess the function of the device within a range of alternative design scenarios and access its benefits over previously used devices - including its impact on the cost of manufacture and the available budget - in order to arrive at a rational decision that reflects the needs both of their organisation and the end market it serves. Design engineers also have to consider their suppliers' ability to fulfil their organisation's planned production volumes, the anticipated lifecycle of the product and where ever possible, identify and mitigate any design and production risks.

Bombshell
Typically, these customers will have invested heavily in training their team in the use of development tools, compilers and debuggers for the ‘Proprietary’ microprocessor or microcontroller family they rely on to define the functionality of their product and therefore the critical differentiation within the target market. Many of these customers have developed their end product's firmware infrastructure around several generations of a particular family of microcontrollers products and have a strong desire to remain loyal to their chosen supplier.

It's no surprise therefore that the acquisition of the customer's current microcontroller manufacturer by another large manufacturer of similar products can come as something of a bombshell. Uncertainty about the medium and long term product availability, pricing, possible product rationalisation etc, causes considerable anxiety for customers as constant availability of the devices they need for their current products and possible future designs is essential.

Support
All parties in the semiconductor supply network recognise that customers of ‘Proprietary’ products need to be provided with additional protection when organisations merge and have to be fully supported through any transition period. Design engineers naturally become concerned in uncertain times but should be reassured that it's in no one's interest to jeopardise existing long term relationships with the customer base. Manufacturers and their authorised distributors are usually able to mitigate any problems that occur, if necessary by helping the customer to transition to another suitable product within their product portfolio.

Design engineers can rely on authorised distributors for an appropriate response to their information needs and requests for technical support. ecsn's authorised distributor members employ manufacturer trained application engineers to provide technical support as required during the typical six to 12 month design process and onward throughout the lifecycle of the product. Such support often includes training for the customer's engineering team on the use of new software tools, a service delivered by their own FAEs supported by engineers from the manufacturer concerned.

From the commercial perspective, the authorised distributor negotiates pricing with the customer's procurement team, which will come as no surprise to anyone, but also provides additional customer support by advising on product availability - by holding agreed inventory levels sufficient to buffer any extended last-time-buy period - by managing customer’s orders, and by providing regular Kan Ban/JIT shipments to meet production requirements.

Over the years the global electronic components supply network has proved itself to be extremely robust. Change is inevitable but authorised distributors have a proud track record of successfully and professionally managing the sort of change we're currently experiencing on behalf of the semiconductor manufacturers they represent whilst at the same time providing their customers with first class all round support.