As component suppliers shift their production to RoHS-complaint parts in anticipation of the July 1, 2006 deadline, the electronics industry may experience parts shortages. While it seems logical there would be supply interruptions of newly compliant parts as OEMs rush to stock up, there is also concern there will be shortfalls in non-compliant parts needed by industries such as defense, medial and telecommunications that are at least partly exempted from RoHS compliance.
One of the reason for shortages is that some OEMs are stocking higher than usual inventory levels to protect themselves from potential shortages. Some analysts estimate that upwards of a billion dollars in components have already been snapped up. Those OEMs and EMS providers best able to cope with potential shortages will be those that either have the wherewithal to buy sufficient quantities of components in advance and those that have strong supplier relationships.
Eric Karofsky, senior research analyst at AMR Research, believes the components industry will experience shortages in both non-compliant and newly compliant parts. “There will actually be shortages of both types of parts. Non-compliant parts are being phased out by suppliers that are making new, backwards-compatible parts,” says Karofsky. “OEMs are taking advantage of last-time buys and accumulating stock.”
He notes shortages could be compounded by component suppliers that take a conservative position in the production of compliant parts. Demand for those parts is not yet certain, so suppliers may hold back. “Producers are unclear of volumes of compliant parts to produce given that every company has different cut-over plans,” says Karofsky. He also notes that inventory levels at parts suppliers will vary depending on their financial ability to produce and stock two versions of their parts. “A lot of this depends on the size of the component manufacturer and its ability – financial and business value – to run multiple lines.”
Much of the non-compliant inventory could find its way into the gray market. But if component suppliers end their non-compliant production, those parts could rise in value – those in exempt industries will still need those parts. “There will be a secondary market for companies trying to get rid of non-compliant stock,” says Karofsky. “Even non-exempt companies still need these parts since they are allowed to use non-compliant parts for products sold before RoHS goes into effect.”
Karofsky notes that non-compliant parts will be needed by service and maintenance groups that are allowed to use non-compliant parts for replacement parts in products sold before the July 1, 2006 deadline. “This brings up a whole new set of problems,” says Karofsky. “How does the service person know which part to put in? Will they need to stock two of everything, both compliant and non-compliant?”