Security, Economics, Technology and the Sustainability Paradox: How worldwide security, economic, and technology trends, combined with the global shift to environmental compliance and sustainability, impose obsolescence, counterfeit, price/availability, DMSMS, and supply chain disruptions that must be managed. IHS discusses these issues and illustrate market intelligence tools, techniques, and best practices in managing the paradoxical risks and rewards heightened in the new generation we have entered.

1. Security, Economics, Technology
and the Sustainability Paradox
Rory King
Director, Design & Supply Chain,
IHS Inc.
Scott Wilson
Content Strategist, Design & Supply Chain,
IHS Inc.
Day 2 – 29 June 2011
Copyright © 2011 IHS Inc. All Rights Reserved. 1

2. IHS – A leading information provider
• Founded in 1959: To provide product • Tens of thousands of customers and hundreds
catalogs for aerospace engineers
of thousands end-users in 180+ countries
• Today: Leading global source of critical • Customers include nearly 70% of US
information and insight dedicated to Fortune1000; 80% of Global Fortune 500
providing the most complete and trusted
information and expertise Strong, Growing Products and Financials:
• Public, NYSE: IHS (2005)
• Employs 5,100 people in 30 countries • Revenue: $1.1B (2010)
Areas of Expertise & Content
Energy & Design & Defense, Risk & EHS & Country & Industry Commodities,
Power Supply Chain Security Sustainability Forecasts Pricing & Cost
2
Copyright © 2011 IHS Inc. All Rights Reserved. 2

3. About Us: IHS Design & Supply Chain
Core capabilities we’ll leverage in our discussions today…
PCN & EOL
Part Search EOL / PCN Counterfeit Compliance Product Electronics Macro
& Research Alerting and Part Risk and Regulation Supply Economic
Mgmt. Mgmt. Lifecycle Tracking Chain Analysis
tracking for Analysis Commodity
BOM parts outside
Analysis Supply Supplier Specs and • Teardown Price
reference
• Lifecycle Chain Risk Mgmt. databases Standards • Comp. Forecasting
• Availability Teamwork Price
• Compliance
Tracker
• Counterfeits • Inventory
• Alternate Tracking
Parts • Forecast
EIATRACK
Parts Universe
& BOM ERAI Content Standards IHS Global
Manager PCNAlert Counterfeits Services Expert IHS iSuppli Insight
Copyright © 2011 IHS Inc. All Rights Reserved. 3

4. Paradox: Stakes Higher Than Ever
Belief that meeting client requirements is possible using traditional methods
CONTINUITY
RISKS
REQUIREMENTS • Constrained RISK DRIVERS
Supply &
• Sustainability • Economy & Markets
Availability
• Customer • Workforce Churn
• Obsolescence
Requirements
• Environmental
• No longer
• Supplier Regulations
compliant with
Requirements
client’s • Conflicts
• Extended Product requirements
• Counterfeiting
Lifetimes
• Counterfeits
• Acts of Nature
• Through-Life
• Excess &
Performance
Obsolete • Competitive
• Security & Safety Inventories • Export Controls
Copyright © 2011 IHS Inc. All Rights Reserved. 4

5. Paradox: Stakes Higher Than Ever
Belief that meeting client requirements is possible using traditional methods
PCN increase of 40% CAGR Military / Aero < 2% of Market
7.3% 1.9% Data Processing
7.5%
Wired Comms.
38.0% Wireless Comms.
19.1% Consumer Elec.
Automotive Elec.
19.8% Industrial Elec.
6.3% Military / Aero
EOL increase of 40% CAGR Shortage and Allocation Issues
REQUIREMENTS
RISK DRIVERS
Capacitors
Disclaimer of Warranty and Limitation of Liability
Aluminum Ceramic Tantalum
Lead Global Lead Global Lead Global
Flexibility Time Pricing Flexibility Time Pricing Flexibility Time Pricing
(Weeks) Trend (Weeks) Trend (Weeks) Trend
Q4 2011 18 0.9% 14 -0.4% 20 -0.7%
Forecast
Q3 2011 18 1.9% 14 1.3% 20 1.0%
Jun-11 18 14 20
May-11 18 1.1% 14 0.8% 20 0.4%
Apr-11 18 1.2% 14 1.1% 20 0.7%
Counterfeits increase Steeply Component Price Volatility
Copyright © 2011 IHS Inc. All Rights Reserved. 5

6. Today: Dynamic Supply Chain Context is Vital
of Client Requirements and External Forces
Regulations Part Trends Product Trends Application Markets
• RoHS • Technology • Technology Unique Trends & Pressures
• REACH • Demand • Features • Computing
• Conflict • Supply • Cost • A&D
Minerals • Obsolescence • Energy Efficiency • Consumer
• Export Controls • PCNs • Competitive • Medical Dev.
Material Component Mfrs. Demand Product Mfrs. End Users
Mfrs. (OEMs and EMS)
Supply
Materials Products
Components
Product Stewardship & Economy Supply Supply Costs
Extended Producer • Market volatility • Counterfeit Parts • Natural Disasters • Supply
Responsibilities • Product • Raw Materials • Energy and Shipping
• Client requirements demand • Regulated Materials costs
Copyright © 2011 IHS Inc. All Rights Reserved. 6

7. Dynamic Context: Inherent in EOL Trends
Cited reasons for manufacturer obsolescence of parts
100%
90%
80%
Economic Impact ~90% of EOL (2009)
70%
Unspecified / Administrative
60% Supply Side
RoHS Tech < 25% Organizational (Company, Manufacturing,
50% Product Consolidation/Rationalization)
Innovation, Technology, and Manufacturing
40%
Environmental Compliance
RoHS
30% Demand-Side
RoHS
20%
RoHS
10%
0%
RoHS
2004 2005 2006 2007 2008 2009 2010
Copyright © 2011 IHS Inc. All Rights Reserved. 7

8. Correlation: Economics and EOL
Demand drives Obsolescence: Track MSI production volume and EOLs
2,600
2,500
2,400
2,300
Semiconductor MSI (Right Scale) 2,200
End of Life Parts % of Total Parts 2,100
2,000
1,900
.80 1,800
.75 1,700
.70 1,600
1,500
.65
1,400
.60
1,300
.55
1,200
.50 1,100
.45 1,000
.40 900
.35 800
6 mos
.30
.25 IHS EOL insight found “demand side” primary reason for 90% of EOL
.20 actions in 2009, vs. more typical 15-20% citations during 2004-2008
.15
.10
Millions Square Inches Silicon Processed - Semi
Parts: IHS Electronics Database
.05
.00
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Copyright © 2011 IHS Inc. All Rights Reserved. 8

9. Correlation: EOL and Counterfeits
Obsolescence and constraints/allocation pose significant risk
Source: IHS Inc. 2011
Copyright © 2011 IHS Inc. All Rights Reserved. 9

10. Back to Basics: PCN & EOL Management
Supply chain continuity between manufacturer and customer are critical
JEDEC: Standards for the Worldwide Semiconductor Industry
Notification of such Product, Process, and End of Life notifications between Semiconductor
Suppliers and their customers.
Product or Process Change Notice (PCN) Product Discontinuance or End-of-Life
Notice (PDN/EOL)
JEDEC Standard No. 46C JEDEC Standard No. 48B
• “A document sent to customers describing • Standard applicable to suppliers and
product or process changes, the reasons affected customers of electronic
for the change, and the projected impact of components.
the change.”
• “Establishes the requirements for timely
• “Establishes procedures to notify customer notification of planned product
customers of semiconductor product and discontinuance, which will assist customers
process changes.” in managing end-of-life supply, or to
transition ongoing requirements to alternate
products. This is to ensure continuity of
supply to customers.”
Source: JEDEC
Copyright © 2011 IHS Inc. All Rights Reserved. 10

11. Compliance: Pressures Continue to Soar
Regardless of exemptions these have a ripple effect on materials used
Bisphenol-A “BPA Free” China RoHS Customer RFP
Full Material Disclosure
EU RoHS Recast Energy Priority Declarable Substances List
(ASD PDSL)
Toxic Substances Control Act (TSCA) Waste Greenpeace
Health Canada / Canada’s Chemical
SIN List - Substitute It Now! Management Plan
EU REACH & SVHC
Security US California Proposition 65
Hazardous ISO 14064 GHG Standards
DEHP-Free Norway PoHS
UN Stockholm Persistent
Substances Organic Pollutants (POPS) Air Safety
Argentina RoHS Product Content Disclosure
EU RoHS and WEEE Thailand’s “RoHS”
EU Battery Directive
Directives
Japan Green ENERGY STAR Carbon Disclosure Project (CDP)
Volatile Organic Compounds
US FDA
Electronic Product Environmental Natural Resources
Regional Greenhouse Gas Initiative (RGGI)
Assessment Tool (EPEAT)
Health
PCF - Product Carbon Footprint
Conflict Minerals
Water Lifecycle Assessment (LCA)
EU Medical Device Directive
Environmentally Preferred Products (EPP)
US EPA Executive Orders
Copyright © 2011 IHS Inc. All Rights Reserved. 11

12. Not Just RoHS: EU-REACH and others
Will lead to more supply chain disruptions; accelerate DMSMS
REACH timeline showing anticipated obsolescence of substances and associated supply disruptions
Obsolete Substances (not pre-registered; can not take advantage of phase-in registration)
Registration: Obsolete
Substances > 1t/yr.
Registration:
Pre-registration
Substances Registered
Registration: Substances > 100t/yr.
Obsolete Substances (not registered by phase-in deadline)
CMR > 1t/yr.
Very Toxic to Aquatic > 1t/yr.
Substances > 1,000t/yr.
Obsolete Substances (not registered by phase-in deadline)
SVHCs (Annex XIV)
Substances not requiring registration (naturally occuring such as minerals, ores; basic elemental such as hydrogen, oxygen, noble gases...)
Obsolete Substances / Restrictions on Dangerous Substances (Annex XVII)
Dec 2008 Dec 2010 Dec 2013 Dec 2018
time
Represents a supply chain disruption
Copyright © 2011 IHS Inc. All Rights Reserved. 12

13. Security & Safety: A Greater Priority
U.S. congress investigates counterfeit parts in DOD supply chain
“The presence of counterfeit
electronic parts in the Defense
Department’s supply chain is a
growing problem that government
and industry share a common
interest in solving.”
Carl Levin, D-Michigan, and
Sen. John McCain, R-Arizona
March 2011
Copyright © 2011 IHS Inc. All Rights Reserved. 13

14. BOM Benchmark: 0.5 – 5% of Parts at Risk
Typical BOM has roughly 0.5 to 5% match to ERAI reported incidents
Shown: IHS-ERAI
Copyright © 2011 IHS Inc. All Rights Reserved. 14

15. Suppliers: No One Immune from Risk
Lack of accountability and traceability allows counterfeits to enter
“It is not uncommon, however,
for authorized distributors to
purchase parts outside of the
OCM supply chain in order to
fulfill customer requirements –
58 percent purchase parts from
other sources.
Specifically, 47 percent of
authorized distributors procure
parts from independent
distributors, 29 percent procure
from brokers, and 27 percent
procure from Internet-exclusive
sources.”
Source: U.S. Department of Commerce,
Office of Technology Evaluation,
Counterfeit Electronics Survey,
November 2009.
Copyright © 2011 IHS Inc. All Rights Reserved. 15

16. Natural Disasters Affect Global Supplies
Japan produces over 50% of silicon wafers globally
Semiconductor Fabs
Silicon Wafer Production 3 1 Aizu Wakamatsu, Fukushima
A Shin-Etsu Kamisu, Ibaraki  ON Semiconductor (Logic)
 Fujitsu (Analog, Discrete, Memory)
B Shin-Etsu Nishigo, Fukushima  Texas Instruments (Analog, Optical)
2 Atsugi, Kanagawa
C MEMC Utsunomiya, Tochigi
6  Mitsumi (Analog, Logic)
D SUMCO Yonezawa, Yamagata 3 Goshogawara, Aomori
 Renesas (Logic)
13 10 9
4 Gunma
11
Display Manufacturing D  ON Semiconductor (Discrete, Logic)
 Hitachi Displays 1 Epicenter  Renesas (Analog, Discrete)
 Panasonic LCD B 5 Hitachinaka, Ibaraki
 Tohoku Pioneer  Renesas (Logic, Micro, Memory)
6 Iwate
4
14 Fukushima  Fujitsu (Micro, Memory)
Resins, Films, Chemicals, 12 C  Toshiba (Discrete)
Copper Clad Laminate… 5
8 A 7 Kofu, Yamanashi
7  Renesas (Analog, Logic, Micro)
2 Tokyo 8 Miho, Ibaraki
 Texas Instruments (Analog, Optical)
9 Miyagi
 Fujitsu (Logic, Micro)
 Rohm (Discrete, Micro)
10 Sendai, Miyagi
 Freescale (Logic)
11 Shiroishi, Miyagi
 Sony Semiconductor (Logic)
12 Tsukuba, Ibaraki
 Rohm (Discrete)
13 Tsuruoka, Yamagata
 Renesas (Logic)
14 Utsunomiya, Tochigi
Source: IHS iSuppli 2011  Matushita (Discrete)
Copyright © 2011 IHS Inc. All Rights Reserved. 16

17. Japan Disaster Impacts: EOL / PCN
Shown: Damaged tooling in the earthquake leads to obsolescence
Source: IHS Inc. 2011
Copyright © 2011 IHS Inc. All Rights Reserved. 17

18. Conclusion: Anticipate supply chain events
to maximize time to react before program impact
Program
Impact
Supply Chain
Availability
Supply Chain
Event
Supply Chain
Economic Trend
Event
Other Events:
• Natural Disasters ! Time
• Export Policy /
Supply
• Environmental
• Conflict
Time before
Track Supplier program impact
Inventories and
Track
Forecasts
EOL/PDN
Track Supplier
Inventories and
Track Economic
Forecasts
Events
Copyright © 2011 IHS Inc. All Rights Reserved. 18

19. Approaches: Economic Forces/Impacts
Acknowledge and monitor entire global value chain dynamics
Copyright © 2011 IHS Inc. All Rights Reserved. 19

20. Approaches: BOM Management
Allow for the ability to move from risk identification to risk mitigation
From Manufacturer & Commodity To End Units Impacted
• Identifying Components In My Business
• Linking Down To BOMS & End Devices
• Prioritize Key Components/BOMS/Devices
• Identify Component Risk
• Identifying Sources Of Inventory
• Leverage Alternate Sourcing Tools
• Identify Mitigation Plan Working With Suppliers
• Develop Counterfeit Mitigation Plan
• Longer Term Impacts
Copyright © 2011 IHS Inc. All Rights Reserved. 20

21. Approaches: Performance Measures
Ensure alerts and performance indicators updated for today’s risks
Challenge Economic downturn… …shortage… …fake parts…
Environmental Compliance
…mission failure!
Establish Workflow
Qualify Manage Validate Report Redesign
+ Approve + Avoid + Detect + Resolve + Resupply
Establish infrastructure to Update processes, tools, and Validate, sample and test Procedures to notify Maintain controlled
mitigate risk through qualified information to avoid components for authenticity. stakeholders, report design/redesign cycles of
and approved designs, counterfeit and high risk Quarantine suspected occurrences, and resolve products. Optimize parts,
suppliers, & parts. parts. counterfeits. incidents. inventory, and suppliers.
Performance Management
Obsolescence PCN/EOL to Detect Issues Price/Lead Time Counterfeit Incidents
End of Life (EOL)
Specific to RoHS/Pb-free Environmental Compliance
Maturity
Decline
Growth Phase-Out
Introduction Obsolete
2003 2004 2005 2006 2007 2008 2009
Copyright © 2011 IHS Inc. All Rights Reserved. 21

22. Thank You
Rory King,
Director Design & Supply Chain, IHS Inc.
RORY.KING@IHS.COM
Scott Wilson,
Content Strategist, Design & Supply Chain, IHS Inc.
SCOTT.WILSON@IHS.COM
Copyright © 2011 IHS Inc. All Rights Reserved. 22