Three Key Product Change & Obsolescence Trends to Keep an Eye On

The Semiconductor and Technology Industry has undergone various recent changes and volatilities, forcing businesses to take urgent action to mitigate the electronic component shortage crisis.  

Since then, companies have been working on identifying their supply chain risks and building proactive mitigation measures and resiliency plans.

As part of this process, OEMs should look closer at their component supply chain risks, including product changes and obsolescence. Semiconductor manufacturers modify, update, or discontinue a product or manufacturing process for various reasons.  

Here are a few key trends leading to product change or obsolescence.  

Technology Innovation & Demand-Driven Product Production 

Technological innovation has created the demand for smaller, faster, and more flexible components in the past decade. In other words, components have had to evolve in design, size, and parametric quickly, and as a result, older components have been phased out faster.  

The need for smaller and faster components has led to doubling the number of transistors on a chip approximately every two years. As a result, manufacturers have focused on manufacturing high-demand nodes and components and obsoleting older technologies faster.  

Since the pandemic, there has been an influx of investment in building new fabs. The U.S., China, Europe, and other countries have declared semiconductors vital to national security. These governments have pledged billions of dollars to help advance their local chip manufacturing capabilities. Powerhouses such as GlobalFoundries, Intel, Samsung, TSMC, and Texas Instruments are building global fabs with government subsidies. Fourteen new high-volume fabs began operation in 2021, several more in 2022, and more are planned to open in 2023 and 2024. Many new foundries will focus on manufacturing high-growth 5G, AI, and automotive technology components. Learn more.  

Mergers and Acquisitions (M&A)  

Businesses have long used mergers and acquisitions (M&A) to strengthen, expand and reduce costs. Since the pandemic, there has been a surge of semiconductor M&As to help companies build expansion capacity, geo-diversify, and develop their talent and knowledge base. After such mergers or acquisitions, it is common for companies to begin streamlining, consolidating, and eliminating redundant and less profitable product lines leading to PCNs, and EOLs.  

For example, our data shows an inccrease in EOLs in 2016-2017 due to several high-profile semiconductor mergers and acquisitions (M&A) in 2015 and 2016. Some companies involved in the 2015-2017 deals were NXP, Broadcom, Altera, and ARM. In 2020-2021 we had another wave of large semiconductor M&As reaching approximately $118 billion. Last year the trend changed to large companies acquiring new small innovative companies to help them maintain their technology growth trajectory. We can anticipate that some of the M&As in 2022 will lead to PCNs this year and next.  

PCNs, Obsolescence, and JEDEC Standards 

When a product change occurs, suppliers must release a detailed product change notification (PCN) based on the JEDEC Standards. These standards are used worldwide to ensure product interoperability by setting the criteria for timely reporting of changes to electronic products to customers. Specifically, the standard requires a supplier to notify its customers with a PCN 90 days before the proposed change. Although suppliers work to meet these requirements, we can see many PCNs since 2020 have not been JEDEC compliant.  

In Summary 

Component obsolescence management is a critical element of your supply chain resiliency plans. 

PCNs impact your entire operation, including your Procurement, Supply Chain, Compliance, and Engineering teams. To ensure operational continuity and profitability, businesses must build a proactive obsolescence management plan.  

Learn how Z2Data’s PRM can help you proactively mitigate PCNs and EOLs.