The Impact of Obsolescence and Shortages on Counterfeit Risk

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While obsolescence and shortages have always been an issue, recent large-scale disruptions have made the electronic components supply chain even more volatile.

Since last December, the global chip shortage has caused pricing shifts, lead time delays, and widespread stockouts. The shortage is bringing a higher-than-normal number of counterfeit parts into the supply chain.

To adequately address the problem, it is important to understand its root causes, exacerbating factors, and how its impact can be avoided.

What Are Shortages and Obsolescence?
Obsolescence refers to parts that manufacturers no longer produce, and vendors no longer carry. Traditionally, microelectronic devices move into obsolescence after reaching end-of-life (EOL), the point when their manufacturer no longer makes, sells, or markets them. Since the item’s lifecycle is over, distributors commonly discontinue carrying and providing support for EOL items.

Shortages occur when specific electronic components are unavailable or only available in constrained quantities. Bottlenecks commonly occur when market demand for certain items exceeds the available supply and production capacity. Shortfalls can sometimes occur when production and delivery are interrupted by natural disasters or geopolitical conflicts. Moreover, parts shortages occur if raw materials used in their construction become hard-to-find or unavailable.

What Drives Shortages and Obsolescence?
Obsolescence is typically driven by a lack of market demand, mergers, acquisitions, or product line consolidation.

Notably, recent events have exacerbated the impact of the latter two factors on the semiconductor market. In 2020, various microelectronics companies announced a record $118 billion in M&A agreements. As those deals conclude, firms will streamline their combined component portfolios to eliminate redundancies and reduce costs.

Moreover, IHS Markit revealed in April 2021 that chipmakers are increasingly making their aging parts EOL to address shifting end-market priorities. High demand exceeding production capabilities typically creates shortages. That imbalance is a significant driver of the current global chip bottleneck.

To read this entire article, which appeared in the January 2022 issue of SMT007 Magazine, click here.


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