The Rise of ASICs, and What It Means for Your Supply Chain
The latest industry trend taking the world (and Wall Street) by storm is cryptocurrency, or more specifically the blockchain technology used to drive it. Gartner defines a blockchain technology as ”a shared, distributed, decentralized and tokenized ledger that removes business friction by being independent of individual applications or participants.”
The idea that critical, sensitive data and information can be safely stored and encrypted without necessitating a central point of access has the potential to alter the landscape for just about every imaginable industry, and everyone from manufacturer CEOs to government power players is taking notice.
South Korean finance minister Kim Dong-yeon is just one example. “The blockchain has potential as one of the core infrastructures of the fourth industrial revolution,” he says. “There are still concerns regarding technical developments and more security measures, but the development of blockchain can really change the world.”
But if evolving technologies such as blockchains are the way of the future, the hardware required to maximize them must evolve just as rapidly – if not even more so. For the equipment manufacturers tasked with designing such products, this is both a blessing and a curse: a blessing because it means there is a built-in demand for their offerings, and a curse because it means that component life cycles grow shorter as faster, stronger, more efficient components are continually introduced into the marketplace.
So what exactly is a manufacturer to do to keep the electronic components in their products as cutting-edge as possible while minimizing production costs? For many, ASICs are the answer.
Application Specific Integrated Circuits are a form of microchip designed for a very specific function. Compared to a general circuit such a microprocessor or random memory chip found within a typical PC, ASICs do not have a range of applications in an OEM product – but that limitation is also their greatest strength.
A general circuit, for example, must be made for the largest consumer base possible, each one with their own unique needs. ASICs, by contrast, are usually created and customized by component manufacturers for a single customer. Unshackled from the need to craft a product that provides everything to everybody, component manufacturers are free to push the limits of what a single circuit is capable of in terms of power and efficiency versus size. If you’ve ever wondered how the processing power of our day-to-day products can increase while getting smaller, ASICs are a big reason why. And as an added bonus, cutting out redundant and unnecessary component functions can significantly reduce the OEM cost per unit.
Equipment manufacturers also benefit from the protection ASICs provide their intellectual property (IP). As the sole consumer and user of an ASIC, OEMs can use this quality to “stand out from the crowd” and gain a competitive edge in their industry. If their offering touts a performance spec that no competitor can claim, it can pay dividends when the consumer is tasked with making a choice between one product or another.
ASICs hold significant advantages over general circuits in many areas, but they are not interchangeable products. As such, supply chains that choose to adopt ASICs into a product design must adapt to meet their needs – or face significant financial risk.
Last Time Buys
It’s already been mentioned that unlike a general circuit which is bought “off the shelf” from a component manufacturer, ASICs are created on behalf of a single customer under a set agreement. The agreement can be time-based, such as a contract to fulfill the customer’s orders over a number of years, or quantity-based for a set amount of fulfilled inventory. Either way, this adds a new variable into the supply chain that needs to be addressed.
In a “classic” OEM-OCM model involving a general circuit, an equipment manufacturer will be able to make product orders for as long the component manufacturer deems it financially viable to do so. While most OCMs will notify their customers of a last time buy date for components end of life, it falls on the OEM to stay ahead of obsolescence however they can, whether through a last time buy or through the adoption of a comparable component from a different OCM.
The nature of an ASIC agreement alters that narrative, but it comes with its own challenges. For example, let’s say an OCM enters into an agreement with an equipment manufacturer to supply an ASIC over a seven-year term. This time frame would have been largely determined by the OEM after taking into account both the life cycle of their product and anticipated consumer demand.
But suppose that demand for their product over this seven-year term greatly exceeds the OEM’s initial projections. In this case, if the seven-year agreement is nearing its conclusion, the OEM will have no choice but negotiate a last time buy for as many components as needed to continue supporting its product. Last time buys already require a significant investment of working capital — but because there is no other alternative, most OEMs in this situation will purposefully overestimate their projected needs, adding insult to injury by way of added expense they may never recoup.
Part of what makes the inclusion of ASICs into a product’s design so cost effective is their ability to be “banked” in die and wafer pre-cut form – the basic elements of a microchip. Having a critical component in such a basic state can help manufacturers avoid upfront packaging, assembly, and testing costs commonly associated with a general circuit.
To be stored properly, however, die and wafer storage requires very strict parameters. Incredibly sensitive to moisture, all die and wafer must be stored in nitrogen-enriched cabinets designed to maintain at least 6-10 percent relative humidity. If an OEM finds its storage infrastructure unequipped to handle such a responsibility, it risks forfeiting several years’ worth of business continuity in an instant.
As the manufacturers continue to move forward with the implementation of ASICs in products representing countless industries, we have been working diligently to offer solutions that overcome these new challenges.
In our Custom Storage & Fulfillment Solution, for example, we not only offer climate-controlled warehousing suitable for general circuits, but intelligent dry storage with SmartDRY™ dry cabinets for moisture sensitive devices such as ASICs. Capable of maintaining relative humidity at a best-in-class 0.5 percent, this remarkable piece of innovation has a market-leading recovery time of less than 3 minutes while still providing ease-of-access. Its exceptional, self-regulating drying technology allows assembly specialists to retrieve critical moisture-sensitive components from desiccant dry cabinet as many as 10 to 12 times per hour. On average, Partstat customers have managed to save an average of 42 percent on annual carrying costs.
For OEMs facing the dilemma of requiring additional ASICs beyond the established agreement with their OEM partner, our Last Time Buy Solution offers a way to guarantee the fulfillment of LTB inventory without OEMs sacrificing a dime of precious working capital upfront. Instead, Partstat will purchase all the necessary ASICs on the customer’s behalf. Then, on a schedule determined by the customer, we will distribute the inventory safely and securely to anywhere in the world for up to ten years.
Partstat is ready for what the future holds – and as long as our solutions are available, our OEM customers will be too.