Monthly Archives: August 2012

The EMS-to-OEM Transition

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We list more than 2,400 sites on our Directory of Electronics Manufacturing Services Companies. Of  them, I would hazard to say at least 15 to 20% now offer some form of ODM/OEM work.

It’s not always who you’d think, either. While the obvious companies are there — Foxconn, Pegatron, Wistron, Flextronics, etc. — more and more smaller firms are joining the fun. Everyone from Hunter Technology, which builds discrete RF/microwave components in California, to Mikroelektronika, which makes fare boxes in the Czech Republic, are involved in some sort of original design manufacture or outright OEM work.

At some point I’ll sit down and count out the exact number. Suffice it to say, it will be significant. EMS firms never sit still.

It’s Official: US Conflict Mineral Rule

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The US Securities and Exchange Commission (SEC) has voted in favor (3-2) of a final conflict minerals regulation.

Good as gold? Overall, the final regulation is an improvement over the proposed rule. IPC, the electronics association, says the modified rule addresses 80% of IPC’s voiced concerns about the proposed version.

The SEC has not posted the final regulation text, but is expected to do so shortly. [Update August 27, 2012: click to see Final Rule, a 356-page PDF.]

Compliance will still be a significant burden for industry. But in fairness, the final rule makes reasonable efforts to lower the burden while achieving Congressional intent.

The final rule provides burden relief to industry by:

  • establishing a unified reporting schedule
  • creating an indeterminate category
  • implementing a phase-in period
  • removing the requirement that a CMR report is required for any recycled or scrap materials contained in a product

At the center of the final rule are three key amendments from proposed rule:

  • Following a reasonable country of origin inquiry, companies unable to determine the origin of the conflict minerals in their product may report the source of their conflict minerals as indeterminate for 2 years. Small companies have 4 years (the SEC did not define a small company as far as we know).
  • Unlike the proposal which would have required a CMR for all recycled or scrap sources of conflict minerals, companies need only conduct, disclose and describe a reasonable inquiry to verify that the conflict minerals come from scrap or recycled sources. A CMR is required only if the reasonable inquiry indicates that the source may not be from scrap or recycled sources.
  • CMR reports will be filed as part of a new SD form. The deadline for submitting the SD will be May 31 of each year, with data from January to December reported. The first report will be due May 31, 2014 for data from January 2013-December 2013. The SEC had originally proposed that each company would file according to their fiscal year. By providing a uniform reporting deadline, the burden on the supply chain will be reduced.

The Rule itself If adopted by the Commission, the final rule would apply to a company that uses any of the four designated minerals— gold, tin, tantalum or tungsten— if:

• The company files reports with the SEC under the Exchange Act.

• The minerals are “necessary to the functionality or production” of a product manufactured or contracted to be manufactured by the company.

Contracting to manufacture. A company would be considered to be “contracting to manufacture” a product if it has some actual influence over the manufacturing of that product. This determination would be based on the facts and circumstances, taking into account the degree of influence the company exercises over the product’s manufacturing.

A company would not be deemed to have influence over the manufacturing if it merely:

• Affixes its brand, marks, logo, or label to a generic product manufactured by a third party.

• Services, maintains, or repairs a product manufactured by a third party.

• Specifies or negotiates contractual terms with a manufacturer that do not directly relate to the manufacturing of the product.

Requirements apply equally to domestic and foreign issuers.

Determining if conflict minerals originated in the DRC or other covered countries

Under the final rule, a company that uses any of the designated minerals would be required to conduct a reasonable ‘country of origin’ inquiry that must be performed in good faith and be reasonably designed to determine whether any of its minerals originated in the covered countries or are from scrap or recycled sources.

If the inquiry determines either of the following to be true:

• The company knows that the minerals did not originate in the covered countries or are from scrap or recycled sources.

• The company has no reason to believe that the minerals may have originated in the covered countries and may not be from scrap or recycled sources.

… then the company must disclose its determination, provide a brief description of the inquiry it undertook and the results of the inquiry on a new form (Form SD) filed with the Commission.

Then the company also would be required to:

• Make its description publicly available on its Internet website.

• Provide the Internet address of that site in the Form SD.

If the inquiry otherwise determines both of the following to be true:

• The company knows or has reason to believe that the minerals may have originated in the covered countries.

• The company knows or has reason to believe that the minerals may not be from scrap or recycled sources.

… then the company must undertake “due diligence” on the source and chain of custody of its conflict minerals and file a Conflict Minerals Report as an exhibit to the Form SD.

Then the company also would be required to:

• Make publicly available the Conflict Minerals Report on its Internet website.

• Provide the Internet address of that site on Form SD.

What must be included in the Conflict Minerals Report. Under the final rule, companies that are required to file a Conflict Minerals Report would have to exercise due diligence on the source and chain of custody of their conflict minerals. The due diligence measures must conform to a nationally or internationally recognized due diligence framework, such as the due diligence guidance approved by the Organisation for Economic Co-operation and Development (OECD).

DRC Conflict Free – then what? If a company determines that its products are “DRC conflict free” – that is the minerals may originate from the covered countries but did not finance or benefit armed groups – then the company would have to undertake the following audit and certification requirements:

• Obtain an independent private sector audit of its Conflict Minerals Report

• Certify that it obtained such an audit.

• Include the audit report as part of the Conflict Minerals Report.

• Identify the auditor.

Not “DRC Conflict Free” – If a company’s products have not been found to be “DRC conflict free,” then the company in addition to the audit and certification requirements would have to describe the following in its Conflict Minerals Report:

• The products manufactured or contracted to be manufactured that have not been found to be “DRC conflict free.”

• The facilities used to process the conflict minerals in those products.

• The country of origin of the conflict minerals in those products.

• The efforts to determine the mine or location of origin with the greatest possible specificity.

DRC Conflict Undeterminable – For a temporary two-year period (or four-year period for smaller reporting companies), if the company is unable to determine whether the minerals in its products originated in the covered countries or financed or benefited armed groups in those countries, then those products would be considered “DRC conflict undeterminable.”

Then, in that case, the company must describe the following in its Conflict Minerals Report:

• Its products manufactured or contracted to be manufactured that are “DRC conflict undeterminable.”

• The facilities used to process the conflict minerals in those products, if known.

• The country of origin of the conflict minerals in those products, if known.

• The efforts to determine the mine or location of origin with the greatest possible specificity.

• The steps it has taken or will take, if any, since the end of the period covered in its most recent Conflict Minerals Report to mitigate the risk that its necessary conflict minerals benefit armed groups, including any steps to improve due diligence.

For those products that are “DRC conflict undeterminable,” the company would not be required to obtain an independent private sector audit of the Conflict Minerals Report regarding the conflict minerals in those products.

Recycled or scrap due diligence. There are special rules governing the due diligence and Conflict Minerals Report for minerals from recycled or scrap sources. If a company’s conflict minerals are derived from recycled or scrap sources rather than from mined sources, the company’s products containing such minerals are considered “DRC conflict free.”

About gold sources If a company cannot reasonably conclude after its inquiry that its gold is from recycled or scrap sources, then it would be required to undertake due diligence in accordance with the OECD Due Diligence Guidance, and get an audit of its Conflict Minerals Report. Currently, gold is the only conflict mineral with a nationally or internationally recognized due diligence framework for determining whether it is recycled or scrap, which is part of the OECD Due Diligence Guidance.

For the other three minerals if a company cannot reasonably conclude after its inquiry that its minerals are from recycled or scrap sources, until a due diligence framework is developed, the company will be required to describe the due diligence measures it exercised in determining that its conflict minerals are from recycled or scrap sources in its Conflict Minerals Report. Such a company is not required to obtain an independent private sector audit regarding such conflict minerals.

Conflict mineral deadlines Under the final rule, the issuer would be required to provide the disclosure on the new Form SD. All issuers will file for the same period – a calendar year – regardless of their fiscal year end. Companies would be required to file their first specialized disclosure report on May 31, 2014 (for the 2013 calendar year) and annually on May 31 for each calendar year thereafter.

References:

SEC relevant page: http://www.sec.gov/news/press/2012/2012-163.htm

IPC relevant page, with kudos to Stephanie Castorina for consistently providing well-crafted messages on the subject: http://www.ipc.org/ContentPage.aspx?pageid=Conflict-Minerals

Software for conflict minerals compliance assurance: http://www.actio.net/default/index.cfm/products/material-disclosure/

For a list of likely-relevant softwares, mostly “cloud” solutions, click here: http://supply-chain-data-mgmt.blogspot.com/2012/08/35-will-outsource-to-saas-or-cloud.html

Wasted Efforts

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The next time we start to complain about government or EPA rules being overly strict, remember this scene:

 

That’s the former site of CGA in Sanford, Maine, where “hundreds of thousands of abandoned circuit boards” having been strewn across three acres for the past 20 years. It will cost hundreds of thousands of dollars to clean it up. Every state has a similar story, and it’s a big reason why legislators and bankers are wary of helping the PCB industry. They can’t help but look at the past and worry that it will be repeated.

35% Will Outsource to SaaS (or Cloud)

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In the next 12 to 18 months, 35% of companies say they will outsource more application hosting to cloud vendors, according to the Wall Street Journal in a recent article by Rachel King.  Bear in mind that Software as a Service (more on SaaS here) is often lumped in the “cloud” category.  We will follow that convention here.

If you are thinking of outsourcing GHS, chemical management and compliance assurance in a supply chain environment, it may be useful to consider this (alphabetical) list of “cloud” players:

  1. Actio Corporation
  2. CA ecoSoftware
  3. Dakota
  4. Enablon
  5. Enviance
  6. Foresite
  7. Hara
  8. i2 / JDA
  9. IHS Global Insight
  10. Intelex
  11. Kinaxis S&OP
  12. PTC Windchill “Business Process Management”
  13. Qumas
  14. SAP EHS (Atrion)
  15. SAS
  16. Siemens PLM
  17. Wercs
  18. And now 3E Company is starting to develop product for the supply network market, emerging from strictly MSDS management

Companies are turning increasingly to IT outsourcing as a means of supplementing and, in some cases, replacing internal hires, says the Journal. Users like how quickly they can get cloud services up and running and how easy these systems are to maintain.

“Outsourcing has a bad name,” says a user quoted in the article, “this is nothing but a platform difference.”

Full story below — just thought readers would appreciate a list of players in the supply chain materials management space. If we forgot any please add yours in the comments section below.

Reference:  WSJ piece —  http://blogs.wsj.com/cio/2012/08/15/cloud-services-drive-fast-growing-outsourcing-market/

ECHA Modifies REACH Tonnage Calculations

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In REACH news, the European Chemicals Agency (ECHA) has modified its methodology for calculating “total tonnage” bands. Make a note of it if you haven’t already.

The shortcomings in the legacy calculation methodology, ECHA is saying, arose from the fact that the REACH Regulation is based on the concept of legal entities rather than companies. To make a long story short, in some situations the old way could lead to involuntary disclosure of confidential business information.

So the agency has decided to modify the envisaged methodology for calculating aggregated tonnages.

The modification removes the “four registrants rule” before publication of tonnage band data on the ECHA website. As it was, the tonnage data— claimed confidential by a given registrant— would still be included in the calculation of aggregated tonnages if there are four or more registrants in a joint submission. This would threaten the Confidential status.

Tonnage amendment already in place  The publication of tonnage bands on ECHA’s registered substances database that took place for the first time in June.  Repeat: ECHA already took the modifications in the calculation method into account.

The “total tonnage band” is published together with other substance-specific information on ECHA’s website.

Total tonnage bands will be displayed for substances on ECHA’s registered substances database from those listed in the following table:

Table source: courtesy ECHA

 

Tonnage data will be extracted from the latest disseminated dossier of each full (non-intermediate) registration, aggregated, converted to a total tonnage band, and published on ECHA’s registered substances database. The total tonnage bands will be published for joint submissions and for inpidual submissions. Tonnage data will not be extracted from dossiers for intermediate registrations under REACH Articles 17 or 18. Tonnage data will also not be extracted from dossiers for full (non-intermediate) registrations where the tonnage band is claimed to be confidential in accordance with REACH Article 119(2)(b).

Claiming confidential Registrants have had the facility to claim their tonnage band confidential in accordance with REACH Article 119(2)(b) since June 2008. If registrants have not done so but wish to claim confidentiality for their tonnage band, they should submit an updated dossier with a confidentiality claim on the tonnage band as soon as possible.

For confidentiality claims under REACH, please note that the claim must be justified in accordance with Data Submission Manual 16, and will attract a fee. Confidentiality will only be granted where the claim is accepted as valid by ECHA. Notably, tonnage data will not be extracted from dossiers where the tonnage band is claimed confidential while the confidentiality claim is under assessment.

Riding High on Design

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The herd is riding on the EDA vendors, almost all of which are at or near 52-week high share prices.

In the past week, Cadence, Mentor and Synopsys hit or were trading just pennies off their yearlong highs. National Instruments and Ansys both traded much closer to their highs than their lows. Even Altium closed in on a high, but that’s a bit deceiving because it’s a penny stock and lightly traded on the Australian exchange.

So, is it the investor herd driving up an industry? Or is it a sign that the EDA market, which topped $5 billion for the first time in 2011, is geared up for a sustained run?

 

Do Research Parks Slow Advances?

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A recent visit to Champaign, Illinois, home of the University of Illinois, got me thinking about the relationship between industry and academia.

On south First St. just past the Assembly Hall, looms the Illinois Research Park. It is growing like crazy, with lots of big names in there. Yahoo, Littlefuse, SAIC and Raytheon are just some of the tech companies there, while Caterpillar and John Deere are among the others onsite and Intel and others are nearby.

The site’s Tech Incubator was in 2011 named in 2011 as one of Inc.com’s “10 Start-up Incubators To Watch,” and is home to more than 30 startups.

And given Illinois has one of the top engineering programs in the world, plus a low cost of living, it’s an attractive place for an OEM or software developer to park a design or engineering lab.

Lots of reasons to be proud, right?

Well, maybe. Certainly there needs to be some relationship between industry and academia. They fill in each other’s gaps. Industry provides the real world need and direction, while universities can engage in the long-range blue sky type of research that future groundbreaking technologies can be built on.

Not to throw a wet blanket on the fun, but is it possible whether the close proximity over time might have a potential negative effect? Is it possible that the near-term thinking industry might corrupt the focus on basic research that is the foundation of academia? Could the tight daily interaction provoke university researchers to limit their thinking to the obvious and doable, instead of dreaming the impossible?

The leveraging of academia shows no signs of abating. The question is, should it?

A Look at Reshoring

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A recent article by Software Advice ERP analyst Derek Singleton looks at what products can be manufactured in the US.

In it, Singleton looks at what’s driving the reshoring trend, which industries are good candidates to come back, and profiles three companies (Hurst, General Electric and Peerless Industries) that have brought production back from Asia — and why.

Read more here.

Removal of Conformal Coating with Small Sandblasters

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Development of conformal coating technology was driven to a large degree by the military and aerospace industries. While conformal coatings are mostly used on populated, printed wiring boards (PWBs), they are also used to protect components such as transistors, diodes, rectifiers, resistors, integrated circuits (ICs) and hybrid circuits including multichip modules (MCMs) and chip-on-board (COB).

Recent environmental regulations and concerns have had a significant impact on both coating materials and application methods, particularly with regard to control of volatile organic compounds and chlorofluorocarbon compounds. VOCs and CFCs have been extensively used as solvent carriers. Manufacturers and suppliers of conformal coating materials have responded by developing non-solvent based coatings and environmentally acceptable methods of application, curing and removal.

It is important to consider how the choice of a conformal coating material affects the rework and repair issues. The need for rework or repair of a conformal coating can occur any time after completion of an assembly due to a variety of process or product requirements and component replacement issues.

A number of methods are available for rework of conformal coatings. These include thermal, chemical, mechanical, plasma and laser-based systems and small sandblasters or “micro abrasive blasters,” which will be the focus of this column.

Micro-abrasive blasters used for conformal coating removal are small sandblasting systems that are commonly used for metal deburring and etching as well as surface preparation. The cutting media is introduced into a compressed air stream and is ejected through a hand piece utilizing tips as small as 0.026″. This is directed at a component or surface area on PCB where the conformal coating has to be removed. This system can remove conformal coating from a single test node, an axial leaded component, a through-hole IC, an SMT component or an entire PCB without any modification to the system for a variety of coating materials. This method provides the most practical and environmentally friendly means for removing conformal coating from PCB assemblies.

Although these small Micro Abrasive Blasters provide the most practical and environmentally friendly means of removal, they also pose a problem. Micro Abrasive Blasters can generate static electricity as the high velocity air and particles impinge on the PWB surface. The ESD voltage generated at the point of contact can cause damage to components and electrical circuits on an assembly.

Equipment manufacturers have used several different approaches to solving the ESD problem. These are: 1) the installation of AC or DC pulsed ionizer bars in the chamber results in a rapid decay of ESD voltages in the work cell and tubing 2) the installation of a point ionizer at the end of the nozzle to dissipate any static charge built-up in the media stream at the point of contact 3) the use of an inline, auto balanced ionizer where the air source is split, one side flowing to the media and the other side flowing to the inline ionizer. This ionized air is then injected into the media stream just before it leaves the nozzle, eliminating the static charge buildup in the media chamber. The ionized air is also pumped into the work chamber. With this type of system, ESD levels are reportedly in the +10V range.