Hands Off the Panic Button

By Suzanne Deffree -- Electronic News, 12/23/2005

Electronic News sat down with Mike Adami-Sampson, VP of product strategy, MatrixOne; David Bergman, VP of standards, technology and international relations, IPC; Marjory Craw-Ivanco, director of green services, global engineering services, Celestica; Phil de Guzman, manager of quality assurance, memory products, Toshiba America Electronic Components; Kirk Olund, manager, quality and reliability, Fairchild; and Steven Schultz, director, strategic planning and communications, Avnet to discuss the European Union’s Restriction of Hazardous Substances (RoHS) directive, the industry’s progress and what will happen in the next seven months as the July 1, 2006 deadline nears. What follows are excerpts of that conversation.

Electronic News: Where do we stand as in industry in terms of RoHS compliance?
Schultz: I think there are issues in the industry, but overall I believe that come the first quarter of the new calendar year, there will be a tremendous number of companies in the Americas changing their lines to lead-free RoHS-related production. I think they are behind on it and I think the supply chain is going to be able to support it with some interruptions on the leaded product at some point. But for the most part, I think we are going to be reasonably OK.
Craw-Ivanco: I would think certainly from a manufacturing, tool-testing perspective, the majority of the industry should be ready. For lead-free components, I would say things seem to be transitioning over nicely. Where we see some significant challenges would be for folks who are going to go with the five-of-six convergence strategy, the lead exemption, where some of their components are coming in lead free and they are facing challenges building products. I think this whole mix scenario may be one that may not have been fully understood by many of the customers who are going forward with these exemptions.
Bergman: In my opinion, I believe that the larger companies that have been paying attention to this for the last several years are pretty well positioned. This will go relatively orderly. I think there are a lot of the smaller companies or companies that have not been paying as close attention that are going to get a pretty strong wake up call with in the next six months or so.
de Guzman: From a supplier’s point of view, we have major customers that have already converted their lines 100 percent. And there are some smaller companies we see that are struggling to convert. Maybe they are waiting for the last minute, but they are aware of it but there are still a lot of questions and answers.

Electronic News: How much of an affect could these smaller companies and their lack of preparation have on the larger companies?
Olund: From what we’ve seen, there are a lot of smaller companies that are holding back, but in general they don’t do their own manufacturing. That’s done by contract. Most of the contractors are already there. So the small guys are dragging a little bit, but I don’t think it will have much of an affect. They will come through on time.
Schultz: There months ago we were involved in answering so many questions for our customers across the board with a lot of the small- and medium-sized customers asking for basic information -- What’s this all about? What’s the impact on the supply chain?  -- to the point it was taking a lot of resources, people for presentations, webinars, things like that. It’s shifted now dramatically. We’re not hearing very many of our customers of any size asking those fundamental questions of what’s this all about and does it apply to me. I think that awareness is out and everybody is moving forward. I think the smaller companies who continue to under estimate the total task will have some problems getting across the finish line in time. But that awareness is there and everybody is working toward it right now.

Electronic News: Then what are the obstacles to reaching RoHS compliance in 2006 as an industry?
Schultz: The biggest problem I see out there is the data exchange issue. There’s still tremendous confusion about where the data is going to come from, in what format. Everybody is spending a tremendous amount of resources, whether that’s the end customers building the product, the companies building the components, distributors – it’s a disproportionate issue for all of us right now.
Adami-Sampson: The automotive guys seem to have done a better job of sorting that out by taking priority and implementing their standard reporting system. At least, while it might still be onerous to do for everybody, it’s consistent for all the folks in the chain. There’s one story.
Schultz: I’d agree with you on that 100 percent. The majority of the industry didn’t move in that direction.
de Guzman: I think it’s not a real obstacle in achieving RoHS compliance, but I do agree that the data, the formats, the reporting, and who’s supposed to do what and all that right now is one of the biggest bottlenecks – not an obstacle. We’ve been working with some of the industry and hoping that the reporting format would be standardized. There are a lot of groups out there that are working toward that.
Bergman: We are very close. And I can’t argue with the fact that there is a lack of standardization in the area of data transferring. That’s pretty key. IPC spent the last year working with the industry pretty feverishly recognizing that we had some catch up to do. But there is a strong push and that standard should be released within the next 30 days. We’re supposed to put it into final ballot. Adoption and usage of that is going to determine how quickly some of the challenges will be mitigated.
Schultz: I agree that the standard will help tremendously. But we had a standard that was the IPC 1066 and the JEDEC standard on the labeling and that’s been in place about nine months. Very few companies have gotten around to truly embracing that. So if the standard goes into affect, let’s say today, the majority would still be struggling with implementing that standard come July 2006.
Craw-Ivanco: I would probably go one step further than just the data exchange. It’s also in terms of the requirements of the European governments to demonstrate due diligence to component compositional information. While initially OEMs were looking for certificates of compliance from the supply base, we are now seeing a lot of focus on actually having test data. There’s not only a requirement to have a standard reporting methodology, it would also be very helpful to have some kind of guidance out of Europe with respect to a required due diligence that companies need to take in order to demonstrate compliance.
Bergman: I would support that. What really constitutes due diligence is the question. And how you would interpret or how some companies would decide to cover themselves is going to be across the board. Some people will just be comfortable with a certificate of compliance, other people are going to require very detailed testing. There isn’t any real clear understanding at this point as to how due diligence will be determined. There are test procedures in place, so you can test, but it’s not really clear how much testing is necessary to show that you have done your job well.
Olund: In fact, from what we understand, any testing or compliance documentation is essentially voluntary right now. It’s not a requirement of the RoHS legislation. It’s something that you do just to make sure that you can prove your parts are complaint in case there is ever a question about it.
Schultz: The unfortunate thing is the due diligence will be determined probably after the fact as issues get challenged after July.
Adami-Sampson: By comparison in the automotive sector, part of the strategy seems to get granular data as a way to forestall that kind of a challenge. By and large, they are imposing full disclosure all the way down the supply chain, right to the very bottom. So everybody has more or less the same granular responsibilities as far as disclosing the substance content. How they get that data from test or otherwise is an open loop right now. But at least everybody is reporting at the same granularity.
Craw-Ivanco: The way we see things unfolding from a content manufacturing perspective is that there are two ways you can report this data for component information. One would be that you do analysis at the material level before components are made and the other would be that you have to go in and start decomposing to the homogeneous level and that’s where there is some challenge. We’ve seen customers that are approaching from both directions. So they ask us to work with suppliers to get full material disclosure prior to the materials actually being formed and then they also ask us to go out to third party test houses.
Adami-Sampson: Do a double check, in other words.
Craw-Ivanco: Yes, and it’s very expensive. It seems to me if there was some kind of standard that was coming out of Europe that everyone could wrap their arms around, we could save an awful lot of money as an industry associated with this entire convergence.
de Guzman: All these comments are good, but RoHS is still really a moving target. There’s a lot of cost associated, especially for a semiconductor supplier. If we are going to report all of this without a format, it will be tough on all of the semiconductor suppliers, for example. All this testing, of course we have to do what is acceptable, but who says what’s acceptable. Who sets that bar? What’s the minimum amount of information acceptable? There’s really no standard from the European committee yet.
Craw-Ivanco: We hear a lot about full materials disclosure and that proprietary information is not being opened up to the industry. If you start off with the wrong materials in principle it could be relatively straight forward to do full disclosure. But having that guidance from the European community – at least as a start, because other geographies will probably follow through in terms of the restrictions.
Olund: In the [Department of Trade and Industry notes from the U.K.] they do talk about testing, but it’s still basically voluntary. It says that producers of EEE [electrical and electronic equipment] placed on the U.K. market may wish to undertake testing. It’s dependent on the supplier to determine the risk.
Craw-Ivanco: When we work to build assembly for OEMs, there’s a definite belief that they want to ensure that they are totally covered from a component perspective. I guess it’s fear that they may not have all the necessary information.

Electronic News: So the European Union hasn’t come through with a clear explanation of what’s expected?
Olund: You can tell by the weight of the documents. They’re under 10 pages. That doesn’t exactly explain much.

Electronic News: The Waste Electrical and Electronic Equipment directive could have been handled more clearly. That was pushed back by many member states. Will we see that with RoHS?
Schultz: Will the date be moved back? No.
Bergman: There are a number of differences between the two directives and much more state by state requirements for making their own regulations in terms of WEEE, whereas RoHS is a single market one. There’s not the option. I have been asked, as well, if there will be a grace period or that the date will be shifted back. I don’t think the date will be shifted back. There may be some leniency, some period of time while they try to seek out violators. But the date is hard and fast.
Craw-Ivanco: Within the WEEE activity, because it’s driven by the individual member states, that’s where the flexibility is. That would be very difficult to coordinate throughout the EU, so it’s coming – faster than we know.

Electronic News: What about exemptions?
Adami-Sampson: I think there are some signs of leniency in the exception work that’s going on. You see exemptions being put on the table, at least for consideration, in bigger quantities. I think the bureaucrats are beginning to realize that they haven’t been clear enough on the one hand, and that the industry could be standing on its head to be compliant with them on the other, and that it’s probably smart to have a negotiating position come July 1.
Craw-Ivanco: I’m worried about the exemptions, actually. Are the exemptions in terms of product reliability? Where there are companies that are going with the lead exemption, I think that we don’t know from a technical perspective any more about mixed-metal reliability than we know about lead-free reliability. In fact, based on some of the technical work that has come out, it would appear that in some circumstances lead-free product is potentially more reliability than products that have mixed-metal. I don’t know how much people will be protected.
de Guzman: If the EC decided to push it back, I think we have to also worry if the inventory of both leaded and unleaded would be a big risk. In the U.S, it’s a $10 billion semiconductor industry. Let’s just say that 10 percent is impacted by that; that would be a billion dollars shared amongst suppliers and distributors. It’s better to stick with the plan. There’s too much risk involved.
Craw-Ivanco: For companies who have made the decision to go forward, it’s not sensible to come back. If you have your plans in place, even if you push the deadline out by six months, the companies that would be influenced by that push out are likely to be the smaller companies that have not yet put anything in place.
Olund: I would agree. Fairchild will be shipping only RoHS-compliant products as of 2006 and if the conversion date is pushed back, we wouldn’t go backward and produce stuff with lead. What it would mean is we’d probably have to support customers with exceptions for a longer period of time because customers who take advantage of any delays would probably take that much longer to complete their own conversion. It would make more of a logistical nightmare and cause problems throughout the industry.
Schultz: We have operations in Europe and the demand for lead-free products is very significant right now. In the Americas, it is fairly small. The demand here still has to ramp up. What we’re seeing is that in the European marketplace, the companies that are based there have put such an investment in transitioning over already that they would complain very heftily if there was a push back. They will be ready, even if the Americas isn’t.
Craw-Ivanco: I would take that one step further. You may have American companies that the European companies suspect are importing non-compliant products. It is very possible the European companies will turn in those companies such that it can influence the importation into Europe.
Schultz: We believe that will be the case. Surveillance will be assisted by those companies that have already converted over.

Electronic News: What do you see happening in the next six or seven months? How will 2006 go from a RoHS perspective?
Schultz: So many of the companies that haven’t transitioned their lines over will be putting this on their front burner right after the holidays with the realization that the clock is ticking. There will be a tremendous emphasis in the Americas right out of the gate come January and that will continue to ramp up.
Olund: We’ve already seen a change in the type of requests as mentioned earlier. They’ve gone from asking technical questions and looking for information to looking for disclosure and compliance information. As we get closer to the July deadline, a lot of the companies that have been postponing their convergence will be swamping us with requests for data information and probably sample to test their manufacturing process. We’re ready for them, so it’s just a matter of workload at that point.
Craw-Ivanco: We have for some time been looking at what I’ll call ‘consumer-product’ lead-free production volumes. There are some of the folks that have been building lead free for some time. Some of the folks that didn’t think they had such a large concern, going into 2006, that has increased dramatically. And it’s just going to be a very busy six months as we enter into 2006.
de Guzman: What we’ve seen so far is the peak, in a way, in activity in terms of data, technical, reliability type of information. But as far as our manufacturing and products, across the board we plan to be RoHS complaint in Q1 to accommodate some customers that need leaded product. Overall, we don’t see a problem with conversion. Our factories are all geared up. Some of them have dual lead and RoHS compliant lines. But we will continue to see an average of 3,000 request for RoHS compliant data, whether it be a yes or no certificate or material composition data. That’s a lot of work and we expect that to continue.
Adami-Sampson: While there may be some panic in the smaller outfits, what we are seeing is a general belief that doing everything in a compliant way is the wisest path because you can never tell who your customer will be or what their product will be. Therefore, it is wiser to have your strategy in a full complaint mode of operation. We’re seeing cause customers to go to the full-disclosure mode of operation because of that. Where some of their customers may only demand a compliance certification, it only takes one or two to bring havoc on their business process and require you to do full disclosure of reporting.
Bergman: The next six months will be a frenzy of companies trying to prepare for the deadline. Some of the challenges that are out there will be either solved elegantly or with brut force. At least from some of the things IPC is observing is that the folks that are exempted are going to be increasingly interested in what’s happening, but increasingly nervous. Particularly in areas where the military folks and the space folks are concerned about changes in their materials sets. We see that smaller segment of the market having some real significant trepidation in the next six months as they are faced with materials elimination.
Craw-Ivanco: We should all have a really good holiday. After the holiday, it’s going to be fun, fun, fun.