Smith Market Blog

Competition versus Margin Increases Spur Collaboration and PPV Demand


2012 is on track for better growth than 2011, and the mobile sector is still proving to be the demand leader, helping to propel the anticipated growth in the right direction.  Yet, despite the forecasts, there continue to be challenges both external and internal to the semiconductor and electronics industry, as summarized in iSuppli's recent report and forecast here.

Externally, it's still the macro-economic situation that has consumers, enterprises, and manufacturers acting more timidly in purchasing and ordering restocks, respectively.  This lingering external situation directly affects how the supply chain reacts.  For example, we see days of inventory (DOI) continue to nudge downward because of the ongoing lean inventory management push, in light of the possibility of additional economic pull-backs.


Internally, there are many push-and-pulls.  The economic concerns are pushing fabs and manufacturers to hold back orders.  As the iSuppli report offers:

"Companies [...] are still waiting to place orders at the last possible minute, knowing that overall manufacturing capacity remains in excess of demand. How much additional inventory reduction will be necessary remains to be seen, dependent more on possible new innovations that could fuel semiconductor growth, than in a simple adjustment being made to supply and demand for existing products."

Pulling production to next generation and size is also occurring.  Many of the larger companies are moving to new node production, 28nm architectures and larger, and lobbying to speed up the move to 450mm, wafers (see here for Electronics Weekly's discussion of Nvidia's 28nm push to Samsung; here for Electronics Weekly's report on 28nm ramp at Global foundries; and here for EETimes Asia's report on SMIC and IBM's 28nm collaboration).  Of course these changes require equipment investments that the fabs are trying to waylay in light of the economic tentativeness in the marketplace.  So, there's a bit of a vicious cycle.

Farther down the supply chain, with the leaning inventory situation and somewhat uneven supply of components (which creates more frequent price fluctuations that we are seeing across many components) at the same time as competition continues to intensify for market share in the hot mobile device sector (e.g., smartphones, tablets, eReaders, notebooks, and ultrabooks).  The competition is very intense presently and differentiators are critical for devices, as is availability, timing, and importantly for the purchaser, pricing.

The culmination of these challenges is in the balance of price point and features for selling devices. This situation has lead to increased collaboration along the supply chain not only for the availability of essential components at the right time and the right place, but also at the right price.  In turn, there have been notable increases in requests for inventory and pricing management services, such as purchase price variance (PPV), component lifecycle management, hubbing, just-in-time production (JIT), and asset disposition services to recapture value from end-of-life (EOL), excess and returned inventory.

To summarize the insight offered by Jay Hollenbeck, Director of Business Solutions for Flextronics, in this interview with SupplyChainBrain, along today's electronics supply chains, there is an emphasis on strategic collaboration with an importance placed on visibility between partners so that the best decisions can be made in concert at the various manufacturing stages, rather than simply relying on the contract manufacturer to make the decisions.

Certainly, many of us are seeing these relationship increases between partners.  In Smith's case, there has been a notable increase in the volume of collaborative services being requested that is going hand-in-hand with the strategic goals of our customers to improve both inventory management and margins while responding to the many challenges being faced in today's tough, but promising, market place.

To learn more about the latest improvements to Smith's services and products, see our Supply Chain Strategies, with special note to our widely demanded PPV Plus+ services, as well as our procurement capabilities and Line Card.

Lisa Ann Cairns, Ph.D.
Written on Tuesday, 17 April 2012 11:17 by Lisa Ann Cairns, Ph.D.

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