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1-11-2012 Distributors Hope For Business As Usual In 2012 Japan’s earthquake and tsunami nearly one year ago sent ripples through the supply chain that electronic components distributors were talking about even as 2011 came to a close. A spike in orders for key electronic components following the March tragedies gave many distributors a healthier than usual second quarter followed by atypical activity in the third and fourth quarters. The events had some distributors characterizing 2011 as a strange year and predicting a return to more normal seasonality in 2012. Looking at the first half of 2012 for the electronic components market in particular, Avnet Electronic Marketing’s Ed Smith agrees that a return to more normal, actualized growth is in store for the industry—barring any macro-economic events related to the European crisis or any further natural disasters, of course. “We’re over the Japanese tsunami activity, so I think we’ll get growth in the quarters we would normally expect growth,” says Smith, president of Avnet EM Americas, pointing to a spike in orders immediately following the Japan crises last March and the subsequent uncharacteristic ups and downs of the market. “It seems that things are back to a more normal state.” There are lingering concerns over the effects of the flooding in Thailand on the hard-disk drive (HDD) market, however, and Smith is watching the situation carefully. Avnet’s acquisition of Bell Micro in 2010 propelled it into the HDD market, spurring growth in the distributor’s embedded systems business. As of early December, Avnet was keeping up with demand for HDDs among most OEM customers, particularly those to whom they sell multiple lines and parts. But the company was having trouble meeting demand among the more opportunistic buyers in the marketplace, Smith says. “I think the first major event you’ve got to think about [in 2012] is, when does the recovery of the HDD market [begin]?” explains Smith. “We’re seeing signs that some of the suppliers are seeing some of their supply back, but some of the big ones are saying it will be (longer).” Since July, the floods have inundated a large part of the country, and it could be months before the waters recede and the full extent of the damage is known. A quarter of the world’s HDD manufacturing capacity is located in Thailand, and three of the world’s top suppliers have facilities in the affected region. The situation is straining supply worldwide, according to a recent report from industry analyst firm IHS iSupply. “[P]roduction capacity for HDDs outside of the affected region in Thailand is constrained at the moment, given that HDD manufacturing in other parts of the world is already at full capacity, with little room left for ramping up,” the early December report noted. Distributors, manufacturers, and end users alike will continue to watch these and other supply chain trends as 2012 unfolds. In the meantime, components distributors are focused on key end markets such as medical and industrial, new geographic opportunities in Latin America, and a renewed focus on service offerings at a global level. In Search Of Hot Spots Looking at end market growth for 2012, Smith points to the medical, industrial, military, and avionics markets as areas that will continue to drive growth in the components market. On the embedded systems side, he says demand for cloud storage equipment is driving much of the growth. Of course, the consumer electronics market continues to drive much of the industry growth overall—for suppliers who sell both directly and indirectly to those markets. Demand for media tablets, smart phones, and ultrabooks (those thin, light notebook-style computers) continues to make headlines. Media tablets are getting the most ink. “Everyone is talking about iPads and competitors to iPads,” says Dale Ford, vice president of industry analyst firm IHS iSupply. “Everywhere you look, you’ve got somebody coming in and getting in on that space—and we expect that to continue.” Second to media tablets is the smart-phone market. Demand for high-end, mid-tier, and low-cost smart phones will continue, Ford says, with an emphasis on the low-cost segment. “We think the low-cost smart-phone products will enable continued strong growth in the smart-phone market,” he explains. “So in addition to the overall trend, the low-cost smart phone is going to help continue to drive healthy growth there.” Looking at the PC market, Ford points to demand for ultrabooks as a hot area—and one that is ripe for new competition. PC makers have witnessed the success of Apple’s MacBook Air notebook computer, for instance, and are looking to capture a piece of that pie. “Major players are putting major dollars into competing in the ultrabook space,” Ford says, pointing to Intel’s push into the market with the release of a new class of ultrabooks that tout longer battery life, are less than 0.8 in. thick, and cost less than $1000 earlier this year. “We expect this subcategory to take off in a very strong fashion.” Geographically, the newest hot spot is Latin America, where companies such as Avnet already have a solid presence. Smith points to increased manufacturing activity in Mexico and Brazil as two good opportunities for components and embedded systems providers. “There’s clearly some on-shoring going on,” says Smith. “Some companies are not going all the way to China, but are going to Mexico and Brazil [instead] to get access to the Latin American market.” He says the region represents even greater opportunity if oil and gas prices rise again, making it more cost-effective for OEMs to manufacture there instead of China. “When oil goes up, the cost of shipping goes up,” Smith reasons. “If we can do things efficiently in Mexico, more will stay there instead of go to China.” Avnet has a particular focus on Brazil, having made some key acquisitions there and gained a large presence in the market through its Bell Micro acquisition. Much of Avnet’s growth in the region has been with embedded systems and its reverse logistics business, Avnet Integrated Resources, which provides reverse logistics and aftermarket services to the global technology industry. “Latin America will be the growth area to focus on, with Mexico and Brazil leading the way,” Smith notes. Providing Services A return to normalcy also means a renewed focus on services for many distributors. For Newark Electronics/element14, this means a special focus on enhancing its online offerings. As one example, the distributor unveiled a new Web-based catalog at the end of 2011 aimed at giving users a richer, more customizable, and up-to-date experience. Built in HTML5, the catalog is available in three versions: online, with the ability to customize your own pdf version; mobile, in an iPad-compatible version for use on the go; and the traditional print version. “We want to make sure we have the right interface to support [customers’] needs,” explains Phil Robins, vice president of marketing and customer strategy for Newark Electronics/element14. Robins points to the mobile apps as the company’s newest innovation and says the distributor will continue to add more apps in the future. The online and mobile versions of the new catalog, for instance, include a price and stock availability app that provides information that is updated daily. Newark/element14 has also updated its site search functionality, improving reliability and adding greater sorting ability, all in an effort to help customers find what they need even faster. “Our goal is to keep building and improving over time,” adds Robins. “We’re taking the catalog—and all our [online efforts]—to the next level.” Avnet’s Smith agrees that customers are seeking more and more services from their distributors these days, and he says the ability to interact seamlessly on a global scale is at the top of the list. Large customers, especially, want to deal with one global company, leveraging their spending power and making it easier to get what they need—wherever and whenever they need it. Information technology enhancements play a key role in that effort, but Smith says customers are looking for better forecasting, product lifecycle, and reverse logistics services as well. “They also want us to be able to move their supply chain anywhere in the world,” Smith says. Product lifecycle services are in particularly great demand among military and medical market customers. As OEMs and contract manufacturers seek to make their products last longer, service-focused distributors take on a key role in developing solutions that address obsolescence issues. “Whenever [a product] is highly regulated, to make a change takes a lot of work,” Smith explains. “They would rather the distributor come up with a change to address it so they don’t have to. And that’s definitely never easy. Keeping a product around longer takes special expertise.” And figuring out what to do with that product when it’s no longer needed is also part of the distributor’s realm. Because electronic products must be disposed of in certain ways, end users are seeking reverse logistics—sometimes called “e-cycling” services—to help them properly manage and dispose of products. Keeping up with such varied market demands is a big challenge throughout the supply chain. But with an outlook for steady, albeit slower, growth ahead, most companies say they are up to the challenge.

New Electronics – the Site for Electronic Design Engineers Latest: Wireless pacemaker is 'world's first' New Electronics Power Embedded Community News Technology Products Events Videos Blogs Interviews Suppliers White papers Jobs | Advertise | Magazine | Digital Magazine | Subscribe for ezine | Request free magazine | Contact Us Add Comments 16 13 September 2011 Rare earth elements vital to electronics industry Rare earth elements vital to the electronics industry What do ics, lasers, optical fibres, capacitors, displays and headphones have in common? Answer: they are all electronic products that depend on one or more of the rare earth elements. And that list is far from complete. There are 17 rare earth elements, all vital to the electronics industry in some form. Yet, despite their name, some rare earth elements are relatively plentiful: cerium is, apparently, as abundant as copper. They are regarded as 'rare' because deposits of these elements are generally not exploitable commercially. Though typically used in relatively small quantities per product, a major worry has emerged recently about the guaranteed continuation of their supply – some 97\% of rare earths are currently supplied by China. Over the last few years, China has been reducing its exports of rare earths and recently cut back more drastically, by around 70\%. And an ominous note was sounded when China completely halted supplies to Japan after a row about Japan's arrest of a Chinese boat captain. He was released and supplies resumed. Squabbles aside, the prediction is that, within a few years, China will need its entire output of rare earths to satisfy its own domestic demand. So action is being taken to avoid the drastic scenario of the supply of rare earths simply coming to a halt (see below). If it did, it is astonishing how many electronic products we use every day would become either much more difficult – even impossible – to make or much more expensive. Take one of the most widely used rare earths – neodymium. It was first used to generate the light in green laser pointers, but then it was found that, when mixed with iron and boron, neodymium makes magnets that are weight for weight 12 times stronger than conventional iron magnets. Result: neodymium magnets are used in in-ear headphones, microphones, loudspeakers and hard disk drives, as well as electric motors for hybrid cars and generators. Where low mass is important, they are vital: for example, in laptops, they provide finer control in the motors that spin the hard disk and the arm that writes and reads data to and from it, allowing much more information to be stored in the same area. In its Critical Materials Strategy, the US Department of Energy (DoE) estimates new uses of neodymium, in products like wind turbines and electric cars, could make up 40\% of demand in an already overstretched market, which is why any shortages would be critical. Most of the rare earths vital to electronics are less well known: erbium is one example, a crucial ingredient in optical fibres. For long distance optical fibre transmission, amplification is vital and is achieved with the help of erbium. Embedded within short sections of the optical fibre, excitable ions of erbium are pushed into a high energy state by irradiating them with a laser. Light signals travelling down the fibre stimulate the erbium ions to release their stored energy as more light of precisely the correct wavelength, amplifying the signals. Tellurium is an element that could see a huge increase in demand because in 2009, solar cells made from thin films of cadmium telluride became the first to outdo silicon panels in terms of the cost of generating a Watt of electricity. Until now, there has been little interest in tellurium, but if it leads to significantly cheaper solar power, demand will rocket and that is why the DoE anticipates potential shortages by 2025. Hafnium is another rare earth proving itself vital to the semiconductor industry; hafnium oxide is a highly effective electrical insulator. It outperforms the standard transistor material, silicon dioxide, in reducing leakage current, while switching 20\% faster. It has been a major factor in enabling the industry to move to ever smaller process nodes. Also central to semiconductors is tantalum, key to billions of capacitors used worldwide in products like smartphones and tablet computers. In its pure form, this metal forms one of two conducting plates on which charge is stored. As an oxide, it is an excellent insulator, preventing current leakage between the plates, and is also self healing, reforming to plug any current leakage. One of the most widely used rare earths is indium, which we all spend a lot of time looking at. The alloy indium tin oxide (ITO) provides the rare combination of both electrical conductivity and optical transparency, which makes it perfect for flat screen displays and tvs, where it forms the see through front electrode controlling each pixel. A layer of ITO on a smartphone's screen gives it the touch sensitive conductivity to which we have been accustomed in the last few years. Mixed with other metals, indium becomes a light collector and can be used to create new kinds of solar cells, together with copper and selenium. Another rare earth valuable for its magnetic properties is dysprosium. When mixed with terbium and iron, it creates the alloy Terfenol D, which changes shape in response to a magnetic field; a property known as magnetostriction. Dysprosium can also handle heat; while magnets made from a pure neodymium-iron-boron alloy lose magnetisation at more than 300°C, adding a small amount of dysprosium solves the problem. This make the element invaluable in magnets used in devices such as turbines and hard disk drives. Other rare earths include: technetium, used in medical imaging; lanthanum and cerium, the main components of a 'mischmetal' (an alloy of rare earth elements) used to create the negative electrode in nickel metal hydride batteries – and cerium also helps to polish disk drives and monitor screens; yttrium, important in microwave communication, and yttrium iron garnets act as resonators in frequency meters; and europium and terbium. The last have been used for decades to produce images in colour tvs, thanks to their phosphorescent properties – terbium for yellow-green and europium for blue and red. More recently, energy saving compact fluorescent light bulbs have used them to generate the same warm light as the incandescent tungsten bulbs they replaced. Is there a single reason why the rare earths have proved so valuable for such a range of technologies? The answer is no – it is more a result of each element's particular physical characteristics, notably the electron configuration of the atoms, according to one of the world's leading experts, Karl Gschneidner, a senior metallurgist at the DoE's Ames Laboratory. "Some of the properties are quite similar; basically, their chemical properties. That is why they are difficult to separate from each other in their ores and that is why they are mixed together in the ores. But many of the physical properties vary quite a bit from one another, especially those which depend upon the 4f electron (a particular electron shell in the configuration of the atom), that is the magnetic, optical and electronic properties. Even some of the physical properties, which are not directly connected to the 4f electrons, vary considerably. For example the melting points vary from 798°C for cerium to 1663°C for lutetium." What makes the rare earths so special is the way they can react with other elements to get results that neither could achieve alone, especially in the areas of magnets and phosphors, as Robert Jaffe, a Professor of Physics at MIT, explains. "The result is high field strength, high coercivity, light weight magnets, clearly valuable in tiny devices where magnetically stored information has to be moved around, like hard disk read/write operations. The magnetic properties of pure metals and relatively simple alloys have been thoroughly explored and there is nothing as good as rare earth magnets. Two paradigms for magnetic material are NeBFe (neodymium-boron-iron) and SmCo (samarium-cobalt), with the former most popular now. "In phosphors, europium, terbium and others absorb high frequency light and then re emit the light in regions of the spectrum that are very useful in manipulation of colour, hence their use in flat panel displays and compact fluorescent lights." Another example is neodymium oxide, which can be added to crt glass to enhance picture brightness by absorbing yellow light waves. Neodymium has a strong absorption band centred at 580nm, which helps clarify the eye's discrimination between reds and greens. Given how vital they are for the electronics industry and other technologies – by one estimate, £3trillion worth of industries depend on them – it is remarkable that the world has been so complacent about sourcing rare earths, allowing a single country to virtually monopolise the supply. But that is now changing. For example, the Mountain Pass mine in California is being reactivated by Molycorp Minerals in a $781million project, having been mothballed in 2002. Others include the Nolans and Mount Weld Projects in Australia, a site at Hoidas Lake in Canada, Lai Chau in Vietnam and others in Russia and Malaysia. In Elk Creek, Nebraska, Canadian company Quantum Rare Earth Development is drilling to look for supplies and has called on President Obama to move aggressively to create a stockpile of rare earths. Another associated problem is the lack of people with rare earth expertise, as Gschneidner says. "There is a serious lack of technically trained personnel to bring the entire rare earth industry – from mining to OEMs – up to full speed in the next few years. Before the disruption of the US rare earth industry, about 25,000 people were employed in all aspects. Today, there are only about 1500." Despite these moves, it could be years before they enhance supplies significantly. For the longer term, there are prospects of better sources emerging. Just a couple of months ago, Japanese scientists from the University of Tokyo announced they had found the minerals in the floor of the Pacific Ocean in such high density that a single square kilometre of ocean floor could provide 20\% of current annual world consumption. Two regions near Hawaii and Tahiti might contain as much as 100billion tonnes. The team was led to the sea floor because they reasoned that many rock samples on land containing metallic elements were originally laid down as ocean sediments. "It seems natural to find rare earth element rich mud on the sea floor," they said. A final extraordinary fact about rare earths is that, despite their importance, we have hardly bothered to recycle them at all. In an age when metals like aluminium, copper, lead and tin have recycling rates of between 25\% and 75\%, it is estimated that only 1\% of rare earths are recycled. Japan alone is estimated to have 300,000 tons of rare earths in unused electronic goods. If we do not correct that quickly, over the next few years at least, rare earths could live up to their name with a vengeance.

To address the potential supply chain disruptions to electronics manufacturers resulting from recent events in Thailand Visibility improving slightly for tech supply chain... News from the northern provinces is improving; the water runoff is finally translating into lowering water levels in those areas, including the northern industrial parks (see this recent report from Reuters). While the process is relatively slow, the fact that the water, which continues to flow downstream, is not being replaced by either additional rains or runoff, means that we may be approaching the downside of this human and economic tragedy that has claimed over 533 lives. Future flood prevention and improvement plans are underway for the industrial parks, but the questions to answer will be to what extent will manufacturers increase diversification strategies for production locations and how many will stay in Thailand? (see this report from New York Times). Bangkok improves while Bang Chan Industrial Estate under alert The situation for the northern provinces is not, however, the same as for parts of Bangkok nor the southeastern parts of Bangkok, such as the Bang Chan Industrial Estate (see here and here for more about the emergent situation due to the northern runoff). Suvarnabhumi International Airport, which is located to the east of Bangkok, where current flood alerts are on high, is still expected by the Thai government and Irrigation Department to remain free from flood impact. However, because of the problems experienced throughout the flooded areas, including most parts of Bangkok, skepticism around such certitude and government proclamations lingers (see here and here from Wall Street Journal's SE Asia Realtime). Noteworthy are the reports that within the capital city of Bangkok, pumping and sludge removal is already underway. According to the Irrigation Department, "nearly half of the northern runoff […] has now flowed into the sea and the rest will be drained out soon," as cited here in Bangkok Post. This assessment means that Bangkok may be dry of water in (roughly) 11 days, according to the same article. Supply chain visibility improving In the most devastated northern industrial parks, where water levels reached 2.80+ meters (over 9 feet) and breached flood embankments, dykes and retention walls, such as in the Bang Pa-In and Rojana estates, there is at least a 10\% water level retreat with more to come. With the receding water, we at Smith are expecting that more substantive assessments and forecasts by the companies themselves will begin to come out in the second half of November; the shortage duration will, of course, vary based on manufacturer, but for some this could last through 1H12. The estimated duration for water drainage at these hardest hit sites is still in the one-month range, but pumping equipment and new 4 meter (13 foot) dyke plans are already in place and ready once water levels recedes to the level of the existing dyke walls. Once the water has been removed, the numbers coming from estate park officials are holding in the 45-day range for "the situation [to return] to normal," as cited here by Reuters. While the estimates for the industrial parks to resume operations is short, given the severity of the flooding, industry analysts are still forecasting a 6-12 month time frame until "makers of electronics components could start producing normally again," according to the Reuters report. Financial analysts are similarly downgrading 1H12 forecasts for many of those companies directly affected by the flooding, particularly those in the PC and hard disk drive (HDD) sectors (see this Bloomberg report). Because of the serious shortage of HDDs, PC shipments are expected to already decline 2.2 – 3.4\% in 4Q11, according to analyst group IDC (as cited in theBloomberg report). According to the IDC research, the present HDD shortages will continue through 1Q12, likely increasing from the present 10\% depressed shipment levels to up to 20\% decrease in HDD shipments. Those are significant levels for the industry and will be felt throughout the supply chain, likely resulting in price increases that will be passed along at the point of purchase. Goldman Sachs' forecast is slightly more conservative, at roughly 8.5\% decrease in shipment rates for PCs due to HDD shortfalls, but still in line (see the Bloomberg report here). The higher prices might sound like relief to companies who have faced weakening consumer confidence, but the higher costs are instead being seen as negatively impacting margins (see, for example, this report on Toyota's forecasts from BBC). Even with the pass-through of some costs at the point-of-purchase, the reduction in volume from the lost components and products will pose significant challenges, especially for the mid- to smaller-sized manufacturers. Contact Integrity Components for updates purchasing@integrityic.com

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