The Price of an EOL Component Is More Than You Think

The passive electronic components that make up so much of what we use in our everyday lives are getting both smaller and more common. 15 years ago, the total number of components that made up the typical cellular phone was around 60. Today, that number has ballooned to over 1,000. Everyone has heard that there is more technology in our smartphones than there was in Neil Armstrong’s space shuttle, but we’ve long reached the point where the two are even in the same stratosphere; in fact, an iPhone 6 could pilot 120,000,000 Apollo missions to the moon simultaneously.

Without taking fluctuating market prices into account, many of these components cost very little to manufacture. Some cost approximately a nickel, while others can cost less than a penny. But it is these small, inexpensive components that are currently threatening to halt even the most sophisticated supply chains, disrupting product lifecycles, frustrating customers, and in some cases prompting the OEM to discontinue entire product lines.

The combination of escalating component demand and limited OCM production capacity has put OEMs who traditionally work in markets known for extended product lifecycles (healthcare, aerospace, etc.) in a precarious position. As demand is pushing component manufactures toward newer, faster, more efficient technologies, there is not enough capacity or financial incentive to support legacy products, and as a result, EOL designations are coming quicker than ever. Something has to give, and more often than not it’s the OEMs who depend on legacy product support that end up desperately sourcing EOL components from unauthorized third-party vendors — usually at significant markups.

“[Passives suppliers] haven’t added a new MLCC fab in years,” says Andy King, President of Global Components at Arrow Electronics, Inc. “There’s limited capital, and from what I’ve been reading suppliers are not making a lot of money in legacy products.”

The options for OEMs struggling with these inexpensive, formally commoditized EOL components are few, and each one requires a significant investment of working capital – often thousands or hundreds of thousands of dollars, all because of an EOL component with an original value comparable to a stick of gum.

While some industries remain optimistic about realigning their initial product designs to be more adaptable to future component iterations, other industries are not so lucky. The healthcare field, for example, must adhere to strict FDA regulations for each product on the market – and virtually every alteration to the original design must be resubmitted for approval. Depending on the product’s application, this process could take up to and beyond 250 days. When the cost of such a disruption is compared against a third-party vendor’s markup price for the legacy component in question, it’s often a matter of choosing the lesser of two evils.

The only true market solution for these OEMs is for their suppliers to increase production capacity to a point that exceeds the current market demand; only then could they potentially turn their attention toward a customer base that represents a secondary source of income. As of today, such a hope is wishful thinking, at best. “There has been limited capital for capacity to increase until recently,” continues King. “and it will take a while to come on line.”

Luckily, there is another solution available that allows OEMs to obtain these components at the beginning of their product’s lifecycle, avoiding the EOL designation entirely and guaranteeing long-term support regardless of the state of the market. And they can do so without succumbing to working capital strain.

For more information about how OEMs can avoid costly supply chain disruptions at the expense of inexpensive EOL components, click here.