What Does 2006 Have in Store for the Electronics Industry?

Dear Reader

It is with great pleasure that I welcome you to the first issue of Arrow Innovation for 2006. And I’d like to start the year off by taking a look at what 2006 has in store for the electronics industry, and in particular the potential impact of a late industry response to RoHS implementation.

Six years on from the dotcom-fuelled boom, the global electronics industry looks set to continue steady growth in 2006. Clearly a key element of this growth lies in Asia, where the SIA predicts semiconductor sales growth of 11.4% in 2006 to around $115 billion. By contrast, the organisation predicts European semiconductor sales growth of 4.9% to $41.4 billion in 2006.

However, there is an issue that could disrupt this scenario of steady growth, and introduce instability into the market. Enter stage left Directive 2002/95/EC, the RoHS Directive. For while there has been a lot of talk about the legislation and the need for compliance, many OEMs and CEMs remain unprepared and continue to hold non-compliant inventory that will be useless come July.

Of course, without comprehensive data on the level of non-compliant inventory it is hard to gauge how significant this issue will be in 2006. However, for argument’s sake, let’s assume that just 10% of European inventory is non-compliant. For semiconductors alone, taking the SIA European figure of $41.4 billion for 2006 and removing ‘high turn’ DRAM and CPU items gives a market value of $27 billion. With an (extremely optimistic) annual stock turn of, say, ten, then the value of non-compliant product requiring ‘immediate’ replacement would be $270 million. With component manufacturing utilisation presently above 90%, such additional demand would stretch lead times and lead to extreme tightening of the market.

Finally - and potentially even more worrying for those manufacturers who remain unprepared for the legislation but want to stay within the law - will be the prospect of writing off non-compliant inventory. In an industry where margins are already tight, this could have a drastic effect on profits, and, potentially, could even lead to business closures in cases where exposure to non-compliant inventory is simply too great.

While this may sound a gloomy way to kick off the New Year, the scenario described does indicate just how serious the issue of RoHS compliance will be to the electronics industry in 2006. The good news, however, is that Arrow can provide the advice, guidance and support that manufacturers need to achieve RoHS compliance. Our significant and ongoing investment in processes and systems that ensure true RoHS closed loop integrity, for example, has already helped many customers make the transition, and will no doubt play a key role in supporting others as we head towards the July deadline.

As always, I hope that you enjoy this issue of Arrow Innovation. If you have any queries on any of the stories in this issue, please do not hesitate to contact us.

Chris McAneny
North European Marketing Director