December 13, 2010

It’s Not Easy Being Green

Anyone who watched the television show “Seinfeld” probably remembers the episode in which Jerry tried to pick up a car he had rented, only to discover that the company had not held the vehicle for him. “See, you know how to take the reservation,” he told the rental agent in frustration. “You just don't know how to hold the reservation, and that's really the most important part of the reservation … the holding.”

When I think of this scene, it reminds me of the ability of modern enterprises to uphold “green” initiatives in the corporate world of cost cutting and quick decision making. Any company can claim to be green. But when you take a closer look at company practices, things are not always what they seem. This is especially problematic when the company’s line of work is helping other enterprises properly dispose of their retired IT assets.

How often do we read about sham recyclers … those that claim to be environmentally friendly but ultimately send e-waste to developing countries? It is much easier to fill up a container and ship IT assets to another country than to take the numerous and costly steps to ensure that equipment is properly recycled in the United States. Some of the latest headlines demonstrate that even the companies that are trying to be green can still be tempted to take dangerous “shortcuts.”

Being green takes a serious commitment. It is not a label to use when it is convenient and ignore when it is not. A commitment to the environment and sustainability must be inherent in the company’s idealistic mission and concrete processes. It can mean that your costs are higher and your business processes more complicated. For Converge, it means that we hold ourselves accountable to a strict no-landfill, no-e-waste-export policy. Every employee and downstream partner knows about our environmental commitment and understands that we take no shortcuts. Every vendor is strictly vetted and regularly audited to ensure that they are handling e-waste the correct way. It isn’t easy, but it’s the right thing to do.

At Converge, we do all the legwork so our customers don’t have to worry about a thing. Whether they want to remarket, redeploy, or donate end-of-life IT assets, we help them make the best decision. And when IT equipment has no residual value, we make certain that every asset is properly recycled so that none of it ends up in a landfill or overseas. Our customers are able to uphold their green promises, often returning money to their bottom line in the process … and we are all able to feel good about what we are doing to protect this world that our grandchildren stand to inherit.

This is why I am excited to announce that Converge has been named a 2010 Green Supply Award winner by Supply & Demand Chain Executive magazine. We have been recognized for our ability to help global enterprises identify the best strategies for end-of-life IT assets and at the same time meet their sustainability goals. Unfortunately, this recognition probably won’t be written about in major newspapers, but it is certainly news worth sharing. And it is an accomplishment to be proud of.

After all, as a famous Muppet once said, “It’s not easy being green.” We couldn’t agree more. But it is easy to ask Converge to do the hard work for you. It’s what we do. And we love it.

November 17, 2010

Third-party certification still not an IT asset management requirement

I attended the 2010 E-Scrap Conference for the first time this year, and I was honored to present my projections about trends in enterprise IT asset disposition and its impact on the e-scrap market.

It was a well-attended conference, with participants from large corporations and manufacturers, IT asset management and e-scrap providers, and government and certification bodies. The hot topic on everyone’s discussion list was industry certifications, which were represented quite well at the conference. It quickly became apparent that organizations are paying close attention to the evolving certifications, but are not rushing to endorse any particular one yet. Rather, most companies are taking a wait-and-see attitude to let the standards develop before starting down the path to certification.

At this point, a third-party certification is not required to conduct business in the IT asset management space. But it soon might be, and clearly people are looking at the core business requirements of these certifications to determine which ones fit their organization.

Enterprise organizations have a significant amount of influence in the industry certification race. The business requirements they set could draw a line in the sand for providers wishing to partner with them. For our part, Converge has always had the required ISO certifications and a no landfill/no export policy. We also anticipate achieving the R2/RIOS certification in spring 2011.

If you attended the E-Scrap Conference, I’d love to hear your opinion as well.

October 8, 2010

Data security ranks number one

Ensuring data security is the number one objective of IT managers when it comes to IT asset disposal. This is no surprise to us, as the world's media focuses on privacy and data breaches, waiting for their next big story. The topic is hot. Organizations found to have unwittingly exposed customer records risk having their reputation tarnished and customer loyalty shattered.

A Google search on "data breach" lists 6,930,000 results. And The Privacy Rights Clearinghouse chronology of data breaches http://www.privacyrights.org/data-breach lists over 500 million records breached since 2005, including details. Technology gurus say once something is posted on the Internet it remains there forever. You can bet the organizations in these articles cringe at the constant and permanent reminder of a gaffe they would rather everyone forget.

The 2010 Data Breach Investigations Report is a study conducted by Verizon and the U.S. Secret Service, analyzing data breaches from the past six years. The results can help shed light on common causes of data breaches.

For example, according to the study, in 2009 48% of data breaches were caused by insiders, both deliberately and unintentionally. Misuse also accounted for nearly half of breaches. Misuse can occur from insiders, but can also happen when a partner or third party does not take appropriate steps to protect an organization's data. What I find hopeful is that only 1% of data breaches from misuse were the violation of an IT asset disposal policy.

This relates to a 2010 Converge Trends Report statistic: 86.4% of respondents have a formal, end-of-life ITAD strategy. In our 2009 study, only 67.3% responded that they had such a strategy. All of these findings indicate that IT asset disposition strategies are being recognized as crucial to organizations' data security efforts, and organizations are communicating them internally. In fact, in the Trends Report, 83.5% said their organization had controls in place to ensure that end-of-life equipment is disposed of in accordance with their corporate strategy.

Each of these studies is managed independently, with varying controls and samples. While none of them can be considered "comprehensive", each can provide some level of useful information to help you evaluate and refine your IT asset disposition strategy. If there are other relevant surveys or reports, let me know by sending me a comment.

October 6, 2010

Damage to parts in transit

Recently, I was on a call with a prominent technology OEM client that Converge works with to test, product identify, classify and refurbish external hard drives. After the hard drives are tested and classified, the next step in the reverse supply chain service was to return the materials to the supply chain — either by Converge managing the process on behalf of the OEM, or by returning the materials to the OEM directly. The OEM’s representative raised a legitimate concern about an issue with a previous vendor that had sent back damaged materials.

This is a common problem when shipping components around the world. Hard drives in particular are very mechanical. They have spinning plates and other interworking parts that are susceptible to damage. Packaging and shipping logistics can have a direct impact on their quality, and the more times a hard drive is handled in transit, the greater the probability that damage can occur due to wear and tear.

Climate control is also a contributing factor to damage. The recommended temperature to store hard drives is from 86°F to 122°F (30°C to 50°C). If the drive is exposed to temperatures above 55°C (131°F), the drive might become compromised. International Customs Inspection is another damage factor. Product integrity is dependent on the import country, duration of the inspection, temperature of a holding area, as well as the quality of the country’s transportation system. Last summer’s traffic jam near Beijing, China, that stretched for more than 62 miles (100 km) and lasted over a week comes to mind as a transportation issue. The average temperature in Beijing was 90°F (30°C). The temperature inside a shipment truck would have surely exceeded the recommended hard drive storage temperature.

Many OEMs ship equipment to APAC locations for testing, only to have the materials return to Europe or North America. The back-and-forth international travel is more expensive and increases the amount of “touches” to the equipment. When materials leave distribution centers ready to be returned to the supply chain but are damaged in transit, it is costly to not only the OEM, but also to the third-party tester as well.

Utilizing a reverse logistics manager that has locations convenient to your facility can lessen the number of parts damaged in transit. Converge has locations in the United States, Mexico, South America, Europe, Asia, South Africa, Australia and New Zealand.

Have you had shipping issues with your equipment?

August 30, 2010

Shortest Path To Recovery

For every batch of service spares that go out the door, a portion of them is bound to return, usually under less than ideal conditions.

No matter how well managed the forward-facing segment of a service parts supply chain may be, it’s often hard to predict exactly what will come back from the field. Will it test as good? If yes, will the organization still have demand for that tested good component? If it does not test as good, will it be covered by warranty, or will it simply be labeled as scrap? If it’s covered in-warranty, how long will it take for the organization to recover credit back from the device manufacturer?

All good questions that seem to be frequenting the desk of any supply chain director in almost perpetual fashion. It’s relatively easy to outsource the forecasting, planning and fulfillment of a service spares inventory, but what to do about this unpredictable returns stream? It represents an element of risk that is quite difficult to quantify until tough questions concerning the end-of-fiscal-period inventory reports are pushed out to inventory control teams by CFOs.

The answer lies within a complete turnkey service parts management solution that includes a buy-back model. The buy-back model has the potential to reduce the time it takes to recover all credits tied to field return product streams from months down to mere weeks or days. It’s the recovery equivalent of just-in-time access to service spares.

In fact, in today’s complex supply chain, no spare parts management solution is complete without a buy-back component. The buy-back model is based on sophisticated analysis of mountains of data concerning the field returns. The data is used by the inventory manager to build a profile of what the returns stream looks like for the organization in question. What is the product mix? What is the error margin within the product mix assumptions? What have the historical yields been for each SKU? How much has the organization recovered from device manufacturers as part of RMA claims concerning in-warranty failures? Does the scrap product carry an intrinsic value of any kind?

Once these questions are answered, a mathematical model is built that predicts the value of field return streams with manageable error margins. Our organization currently builds models that are sustainable for up to five months ahead of analysis date – with some margin of error, of course. The model is utilized to buy back inventory from our partners as soon as that inventory hits their dock doors – condition unknown.

As the underlying data evolves, the model evolves with it. The upside is near-instant gratification for our partners when it comes to recovering value from their field returns instead of managing accounts receivable reports for extended periods of time. And often, the buy-back model prevents good inventory from going stale and bad inventory from ending up in a dumpster somewhere.

While evaluating a buy-back model for your organization, the most important point to consider is picking the right partner for the right commodity mix. Once successfully on-boarded, a properly executed buy-back model will reduce total spend on inventory and will contribute positively to your organization’s lean planning practices.

August 16, 2010

Site balancing for a supply-chain advantage

I was working with one of Converge’s customers a few weeks ago, analyzing service parts inventory levels across half a dozen of their global sites. The exercise was a valuable reminder of the importance of service parts inventory planning and brought to mind a broader supply-chain management problem concerning dynamic sharing of inventory across multiple sites.

Dynamic sharing is a relatively new concept that allows multiple sites to transfer inventory back and forth as needed. To put this into perspective, let’s take the computing industry as an example and focus on notebook computers. There are many common components across multiple brands of notebooks. These common components are typically categorized under CPU modules, memory modules, hard disk drives, optical drives and liquid crystal displays.

Now, let’s consider a service provider that refurbishes customer-returned notebook computers for more than one manufacturer within the same site or at multiple service locations.

The service provider will typically receive consumption or failure forecasts from each manufacturer, and in turn will procure service spares utilizing the notebook manufacturer’s internal part number for each service part.

While this system works well for meeting service-level requirements that the supplier must adhere to for each notebook manufacturer, it also introduces the risk of overprocurement of the same core part under various internal part numbers – either for the supplier or for the owner of the spare-parts inventory.

When this occurs, Converge is approached by our customers, at the end of each fiscal quarter or fiscal year, to evaluate cross-utilization opportunities of their “internal part number” inventory across multiple sites in an effort to drive down their inventory levels by reducing new procurement.

While periodic site balancing through many-to-many part number translation is a good step in the right direction, continuous linkage among internal part numbers that boil down to the same core part number across all service sites can improve supply-chain efficiencies by inherently altering procurement behavior.

Clearly, this is easier said than done. It requires clean data and a fairly sophisticated application logic that is deeply embedded in the supply-chain DNA of the service provider. However, it also represents a competitive advantage if executed properly. In today’s supply-chain services arena, where inventory ownership is the major source of financial liability, a quantifiable competitive edge such as real-time site balancing can be the winning ingredient.

Does your organization practice site balancing? Let me know what you think in comments or by sending me an email.

July 13, 2010

Inventory optimization strategies

The risks associated with carrying excess inventory have persuaded a number of major technology OEMs and contract manufacturers to implement asset reallocation programs. The financial risks can be quite significant and certainly warrant a closer look at the benefits of inventory optimization.

The underlying problem is simple: Companies tend to pile up excess material for too long. As I've mentioned before, technology companies just don't have the dedicated resources necessary for proper inventory assessment. Because of this, many aggregate all excess product together, regardless of its value or condition, in order to balance the books. This unfortunately causes companies to lose a significant amount of revenue if and when they sell excess product to the wholesale market.

This situation can be significantly improved. The burden of inventory liability should be removed from technology companies and transferred to reverse supply chain specialists that have built asset reallocation strategies specifically designed to address excess inventory, and have developed strong channel relationships. Supply chain specialists such as Converge work with their partners to incorporate different levels of the supply chain and a range of unique services into inventory optimization strategies.

To effectively manage excess inventory, supply chain specialists can employ the following strategies on behalf of EMS providers, OEMs and service depots:

  • Asset reallocation
  • Testing and screening
  • Data destruction
  • System teardown and parts harvesting
  • Refurbishment
  • Spare parts management (SPM)
  • Product returns management (PRM)
  • Vendor-managed inventory (VMI)
  • Kitting programs
  • Market intelligence

Within the range of reverse supply chain strategies, three services stand out for their potential impact on the bottom line:

Product ID, Classification, Testing and Refurbishing: These tasks help to identify the product, its quality and restrictions. This service implements the strict multipoint quality control tasks necessary to refinish and test a product to ODM or OEM specifications and maximize value.

Reconciliation and Reporting: Supply chain specialists will offer the ability to reconcile any given shipment at any stage of the process life cycle, and provide real-time reports for an end-to-end chain-of-custody view.

Reverse Fulfillment: This service steers excess inventory or customer/depot returns back to the supply chain to be used in the service spares environment. Centralized stock views are updated in real time, enabling a more efficient, cost-effective organization.

There are, of course, scores of reverse supply chain services that could add value to the bottom line. The takeaway I'd like to leave you with is that even a small shift in focus can turn an excess inventory issue with floating values and interpretations into a solid financial asset. By optimizing excess inventory through a supply chain partner’s asset reallocation program, organizations can reduce inventory liability and exposure, maximize revenue recovery, and reduce operational costs – all while maintaining total customer satisfaction.

June 29, 2010

Top three ways to increase IT asset residual value

Cost controls can be an important part of an IT asset disposal (ITAD) program, with cost-mitigation techniques often enabling the program to pay for itself. One of the most practical approaches taken is the remarketing of retired equipment, which is not only a green initiative, but also one that helps mitigate IT disposal costs.

Remarketing can return significant capital to your organization, especially if your equipment or components have residual value. Value is directly related to the assets’ age and condition, but there are other factors that you can influence to increase their net worth and the overall return rate. Here are the top three ways you can save money and help increase the value of your equipment even before it reaches your IT asset disposition partner:

1. Keep detailed records.
If you don’t know what equipment you have, you can’t anticipate the remarketing value or apply a strategy to your remarketing efforts. Plus, a thorough list of retired assets can decrease your ITAD vendor’s reconciliation costs and will provide extra security if there are ever discrepancies.

Make it a policy to catalog information such as manufacturer/model, hard-drive capacity, memory configuration, CPU type, optical drives and other relevant information.

2. Pack units yourself for safe shipping.
Logistics preparation, including packing and palletizing, is one of the biggest expenses incurred in the proper disposal of assets. Simply packing your equipment prior to pickup could reduce freight costs by 50 to 90 percent. And some ITAD companies, Converge included, will send preconfigured packing kits to clients to make the process extremely simple.

3. Keep machines clean and in working order.
Equipment that needs to be tested, screened and repaired will draw away value, and in the end it may even be cost-prohibitive to remarket. When machines are properly maintained and serviced throughout their life cycles, your ITAD partner will be able to remarket them easily, providing the best return opportunity. The end result is a greater return from your investment.

Start today by implementing even just one of these strategies. You’ll immediately start to save money and maximize the value of your end-of-life IT assets.

June 28, 2010

Recognizing inventory risk in technology manufacturing

Carrying too much inventory is a risky situation, yet it’s a common occurrence for many computer manufacturers, EMS providers and service depots. Excess product is easily accumulated during the ebb and flow of the forward and reverse supply chains, and problems arise when overvalued, obsolete or expired products are no longer needed and become a fiscal liability. In the typical overstock scenario, excess inventories are typically liquidated for pennies on the dollar.

Sources of Excess Inventory
Surplus inventory tends to pile up from several sources:

  • Inaccurate forecasting
  • Service spares excess
  • Customer returns
  • Order cancellations
  • Out-of-warranty or scrap product
  • Product recalls

How It Happens
There are many reasons why inventory becomes a liability, but some of the more prevalent ones are purely driven by demand for excellent customer satisfaction – the product must be manufactured on time, shipped on time and serviced on time. This means having the right parts on hand at all times. What is typically lost in translation here is the fact that although supply on hand ensures total customer satisfaction, it also has the tendency to result in excess inventory accumulation. This is due in part to canceled orders, poor planning and forecasting, a lack of dedicated internal resources to monitor pockets of supply and, ultimately, overbuying.

In addition, customer returns or materials returned from field service are not screened, tested and recertified to ODM specifications for reuse in the service supply chain. This leads to an increase in spend on new service spares that companies may already have in their possession but are not leveraging.

Valuing Excess Inventory
Once excess inventory is properly assessed, it can be grouped into three types of material: leading-edge technology, common technology and trailing-edge technology. Prices in all groups are directly affected by market conditions, and as they change, technology values change as well.

Forward-thinking organizations can minimize inventory risk by implementing asset reallocation processes that maintain, test and authenticate excess product in order to take full advantage of market spikes or to increase efficiencies in the service spares environment. A limited number of supply chain specialists such as Converge exist to manage the risk caused by excess inventory. These supply chain partners have experience in both the forward and reverse supply chains and offer validated excess inventory management programs that can reduce inventory risk and optimize the supply chain for computer manufacturers and OEMs.

For more information on this topic, I invite you to download our white paper, Excess Inventory Management.

June 15, 2010

Set-top box builders' substantial returns rate

Recently, I posted some solutions for managing the long life cycles in the set-top box industry. While this equipment sits in a home for years, many of its internal components become obsolete, thus having a direct effect on managing the service spares inventory for these products. I’d like to discuss another area where additional improvements can be gained, related to the substantial return rate of set-top boxes.

Even though set-top boxes have a long life cycle, they tend to be returned a lot. For instance, they can break, service requirements change or, quite often, the end user simply changes residence. These high field return rates are not just a characteristic of product failure but also of simple address change. Multiply this occurrence by tens of millions of users, and the quantities returned are dramatically high.

Now these boxes are widely deployed – logistically they can be located anywhere. As equipment is returned to local and regional distribution centers, the returns are often palletized and trucked cross-country to a single processing center. This process inflicts additional harm, as electrical components such as fans and hard drives are much more susceptible to damage when transported in a hot truck under less-than-ideal circumstances.

Rather than ship boxes across the country to one location, forward-thinking cable service providers and manufacturers can save money on freight by relying on partner-managed, centrally located processing centers, such as those handled by Converge. This type of outsourced solution can utilize packaging and product planning techniques to minimize transit time and ensure that equipment is not damaged further. Once the set-top box arrives at its destination, it is tested to strict standards and reconditioned for redeployment, and components are harvested for reuse/resale or responsibly recycled.

I’ve noticed two opportunities that manufacturers often fail to take advantage of:

1. Cross-utilization of parts in processing. Since a high number of set-top boxes are returned simply because of a move, they typically have a high yield or pass rate. In a heavy-return/high-yield environment, there is significant opportunity to repair failed units with NTF (no trouble found) parts harvested from other returned units. This practice decreases the need to purchase additional service parts inventory if implemented in the decision-making process properly.

2. Often the only reason set-top boxes cannot be immediately returned to service is CID (customer-induced damage), such as scratches or other blemishes on the surface of the unit. For example, maybe someone placed a plant on top of the unit, leaving dirt and a water mark. Damage such as this can be easily fixed with harvested shell components or minor cosmetic touch-ups such as paint or cleaner, enabling the manufacturer to return the box to service quickly and at low cost.

Because of the unique nature of these high returns and the potential to reuse parts, it is surprising to me that many vendors are still running old-school processing centers that do not take advantage of these opportunities to save time, money, logistics costs and repair costs.

Do you have additional ideas? Let me know if you have any other low-cost ideas that can have high financial impact.

June 3, 2010

The evolution of computing

Last week I attended an industry event attended by many of the computing industry's heavy hitters. Among the many notable speakers was one who made a significant impression on me because his topic undeniably spoke to the changes that have happened and continue still, shaping the industry and the way we do business.

The key takeaway from the presentation revolved around the evolution of computing from the 1990s into the new millennium and up through and after 2010. The role of hardware and software has continuously evolved over time, and it has forever changed the way we manage the supply chain for enterprise computing.

To review history: Through the 1990s and into the early 2000s, most enterprise computing was vertically scaled, with expensive individual computers containing heavily specialized hardware running very proprietary computing environments. A by-product of this situation was that manufacturers had to run almost completely different supply chains for the enterprise versus the non-enterprise products, simply because the two platforms didn't have much in common. They weren't ever meant to share hardware or applications.

During this time the hardware itself was a differentiator — it was so unique that it was what made the enterprise special. But the challenge came in that the enterprise environment was usually very expensive to implement and maintain compared to the desktop environment.

Due to the uniqueness of enterprise products, manufacturers typically built higher volumes of non-enterprise products, which were more cookie-cutter in design and therefore less expensive. However, the heavy cost burden was on the enterprise side.

This meant that computer manufacturers had virtually no leverage through volume in the enterprise computing environment, because the materials lists were so different and the volumes so small. On the other hand, the non-enterprise products shared many components, allowing the computer manufacturers to negotiate volume rates.

Over the course of the past two decades there's been an increase in server farms, with the term "cloud computing" evolving to represent this. While in the 1990s hardware was the differentiator and a single enterprise computer running a specialized operation was the norm, the enabler for cloud computing now heavily rests with software as a strategic differentiator.

Today, enterprise computing has evolved to a collection of low-cost computers running a range of highly available software that is sold or allocated in portions — the current state of cloud computing. This industry trend offers an opportunity for computer manufacturers and service providers to implement lean planning and to optimize overall supply chain practices.

When you think about it, software technology and edge-of-the-network routing intelligence have come a long way to enable concepts like the cloud computing model. With this new environment in place, manufacturers have the option of cross-using the same set of parts that can be borrowed from lower-end products. Maximizing part sharing is an opportunity to build traditionally non-enterprise components into enterprise footprints.

Since the application layer has become a greater differentiating factor between enterprise and non-enterprise hardware, the underlying hardware platform is simplified and its components can be interchanged across multiple platforms. In turn, this strategic shift implies the merging of enterprise and non-enterprise supply chain management processes.

In short, the evolution of computing has led us to the present day, when hardware is becoming shared more and more across platforms. This translates into cost savings in both forward and reverse supply chains. Speaking specifically to service spares for this new footprint, this model helps to increase efficiencies by lowering inventory and operating costs. It also allows supply-chain managers to leverage their non-enterprise volume muscle to support enterprise platforms.

Along with R&D efforts currently under way furthering software development progress, we predict this trend of sharing parts between desktop and server to continue all the way through edge-of-network and infrastructure devices.

May 19, 2010

Set-top box builders' long life cycle problem

In today's blog, we'll take a look at the reverse logistics of the set-top box market.

From my perspective, there is plenty of room for improvement in the return process for set-top box builders. Achieving improvements in the returns process is actually not difficult when you implement life cycle planning principles. In this blog, I'll touch upon the issues of managing the long life cycle of these materials.

Set-top boxes are widely used and recognized in the consumer market. These are the cable and satellite boxes used with televisions and found in most households in many shapes, sizes and configurations. They have a very long life cycle, staying in homes for years after initial installation. But the life cycle itself is not the core of the problem. The real issue is the core commodities (memory, storage drives, etc.) in each set-top box that reach end-of-life while the box is still in use. This creates a problem for set-top box manufacturers, who have to ensure that they have a supply of materials to properly service and repair equipment that has been in the field for a significant amount of time. This ultimately leads to manufacturers making substantial last time buys (LTB) to handle end-of-life component issues – thus inflating their overall service parts inventory – or finding engineering solutions for the products to utilize other replacement materials.

Compounding this situation is the fact that legacy storage devices have been rapidly moving to the newer models and configurations in the hard drive industry over the past few years. In response, set-top box manufacturers have moved to newer architectures and discontinued the use of older technology. But this response raises several issues: Vendors can't get an ample supply of materials or support older architectures, or if they can, it's at significant cost. The end result is that manufacturers are forced to choose between two options: either negotiate for LTB (significantly increasing service spare inventory levels) or find an in-house engineering solution. It's a risky business proposition in both cases.

The third option that I recommend is to more closely evaluate the manufacturers' return stream, meaning boxes or parts that come back from service calls in the field. Typically, when these parts are returned, they are an afterthought and end up ultimately being recycled or liquidated for pennies on the dollar. These materials are usually stored for long periods before disposition and are not factored into the forward supply chain. In this example, the manufacturer or the service provider might be receiving significant numbers of no-trouble-found components from the return stream, or reverse supply chain, that they just don't realize they have.

The valuable parts inside the returned set-top boxes could be harvested to be reused or remarketed back to the service supply chain, removing the need to purchase large quantities of LTB components. However, this option is usually not considered. And rightly so, because teardown is generally not a core competency for most manufacturers and is considered a cost center.

Utilizing the skills of a third-party service provider can remove this roadblock. Third-party reverse supply chain organizations, such as Converge, are highly skilled in tear-down, testing, kitting, packaging and shipping materials back to the manufacturer or service provider for reuse in their service spares inventory. A third party can also properly recycle materials or save any valuable components that meet testing requirements for future use.

This solution is environmentally friendly because it minimizes waste while maximizing reuse. It is also cost-effective because it produces a stream of service materials that are already owned by the manufacturer while removing the need for costly LTB. And it doesn't cost as much as you would think. In fact, a service like this is essentially a net gain for the customer.

What are your thoughts on reusing tested and screened materials in the service environment?

May 12, 2010

LCD market ready for a storm of activity

Converge LCD Update.

The LCD market has been reasonably stable as we move deeper into the second quarter of 2010. Seasonal factors are a primary contributor to the recent downward slope of demand, following the holiday-crowded first quarter. A number of factories are not quoting firm pricing in May on TV panels that are 40" and larger. Instead, clients with forecasts are advised to negotiate contract pricing on a case-by-case basis. Pricing on sizes of 26" through 37" remains stable, with fluctuations in single-digit amounts. A high level of inventory in the distribution channel is another reason dictating the current market conditions. Overall, TV panels yield higher profits in comparison with notebook and desktop panels. As we approach the third quarter, when OEMs finalize their forecasts to meet the year-end demand, panel makers will be juggling to expand production capacities for TV panels at the expense of other product lines. Panel shortages and pricing instabilities may very well be in store in the near future.

The first product segment to feel the effect of shifting production capacities is notebook panels. Although not officially announcing the fact, factories are surely and quietly realigning their production lines to maximize profits in the third quarter. Given the ongoing material shortage and that Foxconn will be consuming a considerable portion of the Chimei-Innolux output, a shortage on notebook panels appears imminent. If such speculations become the consensus of the market, Converge expects to see upward pricing pressure in the open market in anticipation of the panel shortage as early as the second half of May. An estimated 3% to 5% price increase between June and July does not seem out of place at this point. The shortage will potentially spill over from the mainstream 15.6" and 17.3" to all other sizes. Meanwhile, the strong demand from the service industry for 14.1" with WXGA resolutions and CCFL backlight will likely stay center stage throughout most of the quarter, particularly for panels made by AUO and LG Philips.

The market for desktop panels is fluctuating modestly in May, with factory pricing largely unchanged for most sizes. Average lead time quoted by the factories is still in the four-to-six-week range. Little change took place in demand from April to May — although factory output volume as well as pricing may be due for adjustment amid the upcoming realignment of production lines. Like for panels for other applications, industrial panel supplies are also expected to be tighter as we approach the end of the quarter. For the month of May, Converge sees increased booking in preparation for the upcoming shortages. Despite a relatively quiet April and May, the LCD market seems to be staging itself for a busy third quarter. Stay tuned.

HDD pricing slopes expected to continue into June

Converge Storage Update.

Higher-capacity 3.5" desktop SATA HDD pricing continues to drop. In our last Market Insights we reported a price drop in the 1.5 TB and 2.0 TB capacities. Now these price declines are occurring in the 750 GB and 1 TB drives as well. The 750 GB models are selling in the high $40 to low $50 range, and 1 TB drives can be purchased in the low to mid $60 range. Meanwhile, the 1.5 TB has dropped to the high $80 range, and 2 TB can be found at around $120. Converge believes this is due not only to the seasonal slowdown in the HDD market but also to reports that a 3 TB model will be introduced in the market later this year. Additionally, analysts are reporting that the big PC builders are pressuring the major HDD manufacturers for improved pricing after seeing HDD margins soar in 2009 while experiencing slim margins themselves. As a result, we expect the pace of this erosion to continue through May and into June. While price is eroding in the higher-capacity 3.5" desktop SATA HDD, this has had little effect month over month on the lower capacities, with prices off by only $1 to $2 on 80 GB through 500 GB drives.

Activity in the enterprise market is heating up, with the SATA interface emerging as the preferred interface. The higher-capacity ranges coupled with lower costs have significantly displaced the SCSI and Fibre Channel HDDs. Manufacturers continue to push development of larger-capacity, faster and quieter offerings in the SATA interface. In April’s Market Insights report, we noted the release of Western Digital’s newest addition to the Velociraptor line — a 600 GB, 10K RPM, 32MB, 2.5" SATA HDD. As previously mentioned, Seagate is believed to be releasing a 3 TB 3.5" HDD later this year, to be followed by a 1 TB 2.5" model. However, the SAS drives are slowly gaining favor in this space. They can’t compete dollar for dollar on cost per drive with SATA. However, the available speeds per capacity, as well as reliability, are justifying price for some and thus gaining favor and market share.

Finally, the IDE shortage continues. This is most evident in the 2.5" FF, resulting in soaring open market prices. This was reported last month and remains unchanged. Prices are up $5 to $7 per capacity. The 40 GB, 60 GB and 80 GB 5400 RPM models are selling for approximately $27, $30 and $36, respectively. With demand unlikely to change any time soon, we expect pricing to remain elevated for several months.

Lead times and shortages remain steady

Converge Semiconductors and Integrated Circuits Update.

Lead times on most of the shortage items Converge has been tracking over the past six to eight months have remained steady. There are some products, most notably the TI TPS data converters and MSP430 series microcontrollers, that are seeing some easing in lead times, although it’s too early to tell if this is temporary due to a slight dip in overall demand during the past several weeks. Lead times continue to be long, however, in their DSPs, as some products are out to 28 weeks with open market prices climbing to record highs. Optoelectronic lead times remain steady in the 16-to-24-week range. Some families of On-Semi diodes are still tight, while others have loosened slightly. Microsemi diodes are still the kings of stretched lead times, with some pushing out over 50 weeks. AMCC has joined Atmel, Infineon, Freescale and TI with some microcontroller lead times out over 20 weeks.

Many of the spot shortages we have been tracking have been resolved by product “trade off” in the manufacturing process, allowing for delivery on some products while forcing others to go short. Chip manufacturers are still not sold on the strength of any global recovery and as a result continue to hold back on increasing capacity. Instead they are opting to make the best of what they have currently available. This is causing the easing of lead times of specific chips within a product type, while allowing for deliveries of others within that same product type to lengthen. In other words, shortening the lead times of a part that has been a problem at the expense of another.

All in all, barring an unforeseen downturn in the economy, we expect more of the same market conditions we’ve been watching for the past six to eight months to continue through the summer build season.

Market dynamics offering double-digit margin savings

Converge CPU Update.

In April the market was active, as shortages and savings were in abundance across the range of processor families. This positive bounce, which was unanticipated, bucked the trend set in Q1 with sluggish demand across the main mobile and desktop markets.

In particular we saw the full force of the Intel Arrandale shortage, with the I-330M, I3-350M and I5-430M all suffering from depleted stock as OEMs moved from the Intel Montevina platform. This resulted in parts changing hands at inflated pricing during April. We expect the I3-330M to settle in the $100–$110 range, but spot market prices of around $130 have not been uncommon.

Currently, we are seeing a swath of excess inventory in the market as the Nehalem, Wolfdale and Montevina families go end of life. The T7700s, T8100s and P7350s are among the CPUs selling below their direct pricing in the spot market. Server chips continue to deliver savings, particularly in the 45 nm Nehalem and Dunnington families. In some instances, double-digit margin savings can be attained, making this an opportune time to gain a price advantage as we cross between new and old architectures.

Expect memory prices to slide in May, rebound in June

Converge Memory Update.

The memory market, specifically for modules, has been showing some signs of weakening over the past four weeks. Although activity in the spot market for DDR2 and DDR3 modules has been relatively light since late February, pricing has remained stable. However, as a result of the lack of spot market procurement, prices for 2GB DDR2 and DDR3 modules are showing signs of coming down. Another factor that Converge believes has added to the pricing instability was the unexpected announcement that the contract price for 2H April had settled at stable to slightly down. As Tier 1 box builders weigh the option of reducing memory content for upcoming shipments in consumer desktop and notebooks, supply seems to be catching up.

Judging by the tone of numerous memory vendors, we could see the spot market price continue to slide a little over the next three weeks as we approach the long holiday weekend in the U.S. Converge believes that any further drop for DDR2 and DDR3 memory will be minimal. Pricing is expected to stabilize and possibly rebound by the beginning of June as the industry begins to prepare for the build season.

April 29, 2010

Three IT asset disposition differentiators

Recently, I posted a blog about how to evaluate and choose an ITAD provider. The advice provided is a good jumping off point to help clear the field of companies that aren't quite the right fit. The next logical question, once you've created your shortlist, is how do you differentiate between providers? There are numerous ways to measure one vendor against another but three key differentiation points always seem to rise to the top.

First, look at geographic reach. Are they a local provider, a national provider, or can they provide ITAD services on a global basis? If your locations are only in the U.S., it won't really matter if the ITAD provider can provide services around the world. If, however, your organization has offices in various parts of the world, you will certainly want to consider a single vendor who can offer one ITAD process for all your locations. The standardized process will save time and offer increased liability protection.

Second, what are their reporting capabilities and are they convenient for you. The most advanced ITAD providers have developed online systems with complete transparency into the entire end-of-life IT asset disposal process, from pickup to final disposition. If you want to know when an asset arrived at its destination, you should be able to log in and find that information. You'll also want to make sure the reports that you want are available, that you can sort the data multiple ways and view and print certificates of recycling and destruction.

And third, find out about the ITAD vendor's remarketing capabilities. Chances are, not all of your equipment destined for disposal is e-waste. Your provider should be able to remarket the equipment that still has reuse value to help you recover some of your initial investment. How experienced are they, and how extensive is their network? Are they only able to remarket complete systems or do they have the ability to generate residual value through de-manufacturing and selling viable components?

The decision of an ITAD provider is not one that's taken lightly. Converge's customers come to us with laundry lists of questions and requirements and we wouldn't have it any other way. I want to make sure each customer has complete confidence in our abilities. In the end, you are handing over some of your most sensitive information to this vendor. Make sure it's an organization you trust.

April 15, 2010

Intelligently reintroducing product back into the service supply chain

A very high percentage of materials returned from technology service calls are actually in perfect working order. In the reverse supply chain industry we call this no-trouble found (“NTF”) or no-fault found (“NFF”). Some organizations simply scrap these components, chalking them up to the cost of warranty and repair. This introduces unnecessary spend on resupplying their spare parts inventory. The most intelligent companies use proven best practices to reintroduce the needed NTF products back into their service environment or create a new revenue stream from the items they don't need for potential warranty claims.

Here's a real-world example. Let's say you're home working on your desktop or laptop, and it breaks. You don't know what's wrong, and since your purchase included an on-site warranty, you call the 800 number for a technician to come to your house. The technician arrives with a repair kit, ready to fix pretty much whatever problem you're having with your system. But the technician is not really going to diagnose everything -- he doesn’t have the time to sit there and diagnose every single problem on your system. So he does a lot of swap-outs. He might pull out four pieces of memory modules and replace each, not knowing which of those memory modules is causing the problem. But your computer works now, so the tech packs up the four modules he’s just removed and goes on his way.

Now those four memory modules that were pulled out of your system end up back in a warehouse aggregated with similar material from the same situation that has happened thousands of times a day. Keep in mind that it is very likely that not all of these modules are faulty; in fact, maybe only one out of four is truly bad. That would amount to a 75% NTF rate on your memory, with three pieces being perfectly fine to use in the service depot once tested to ODM specifications and repackaged for field use.To intelligently reintroduce the working products back into the service supply chain, companies will aggregate these types of materials within their organizations, typically at one or two hubs. Converge then provides testing and screening services to go through this material and find those items that are NTF. Once we separate the good from the bad, the company decides if it requires any NTF product back for warranty support. In other words, is the company still supporting that product in the field? If yes, the product is routed back to them. If no, then the product can go out for asset recovery through the product returns management program. The benefit here is that the company leverages Converge's ability to look into multiple organizations' service pipelines and forecasted demands, and to resell that product, maximizing its returns.

NTF rates vary by component but can be as high as 77%, which is pretty unbelievable when you consider the amount of returns coming back to organizations. But companies are all about customer satisfaction -- they want to take care of us, as the consumer, as quickly as possible. So they do whatever they need to do to make sure your system is back up and running, even if it means replacing parts that may not be defective within those systems. The key is for them to implement a testing and screening process on the service depot end to be able to intelligently reintroduce NTF product back into the service supply chain.

April 14, 2010

Demand remains healthy

Converge LCD Update.

Despite sustained material shortages, the LCD market is catching its breath in April after a rally in recent quarters. While the overall lead time on TV panels remains between 4 and 8 weeks, 40" and larger sizes are actually delivering closer to 4 weeks than to 8 weeks. Factory pricing for these sizes has also only dropped by single-digit amounts. Pricing remains unchanged from the previous month for panels between 26" and 37", with lead times closer to 8 weeks than to 4 weeks. One factor for the pricing correction is seasonal, as demand declines from the peak of the holiday seasons around the globe. Panel makers are approaching the market situations with cautious confidence as the overall demand for TV panels is expected to remain healthy after this temporary correction.

Desktop panels are holding ground with factory pricing remaining largely unchanged and supplies tight for sizes between 21" and 24". Pricing fluctuates slightly on these sizes, in the $2 to $3 range, depending on the models. Average lead time is also unchanged in the 4- to 6-week range. Demand persists for certain 17" through 19" models, particularly those with 4:3 aspect ratios. Market pricing also remains high, at the low $100 range for these models.

Shortage is modest for notebook panels. Selected sizes with new LED technology, such as 10.1", 15.6" and 17.3" panels, are in higher demand. Pricing fluctuation is largely fueled by the weaker dollar in recent weeks. With CCFL backlights being obsolete, the demand for inverters also dropped. Not surprisingly, certain models featuring CCFL backlights with attached inverters are showing clear signs of shortage. Pricing will likely continue to rise in the foreseeable future as these panels become scarce.

Recent market activities seem to confirm Toshiba’s decision to exit the TFT business (see Converge’s March Market Insights). AU Optronics announced on March 31 the acquisition of AFPD, Toshiba’s subsidiary in Singapore. AFPD is one of the largest manufacturers of low-temperature polysilicon, or LTPS, TFT LCDs. LTPS is the base for the new active-matrix organic light-emitting diode, also known as AMOLED, technology. The AMOLED display technology is expected to replace conventional TFT in future mobile phones. This $110 million acquisition will allow AUO to better position itself to compete with Chimei Innolux Corporation in the mobile display market. This move is also interpreted by market observers as part of AUO’s strategy to regain its leadership position in the TFT manufacturing industry. This acquisition is scheduled to be official in July. Converge will continue to monitor the market impact of this marriage as well as Toshiba’s future plan for its TFT business.

Product development drives capacity and speed

Converge Storage Update.

Status quo is how we would characterize the HDD market in assessing the first quarter of 2010. Historically demand in the first quarter is the slowest of the year, but remains as expected and in line with previous years. When comparing the results of Q110 to Q409, it is evident that the shortages and demand that were prominent last quarter have diminished. However, this is not an overall indication of market direction but more of a seasonal trend. Most analysts are sticking to earlier predictions of double-digit increases in sales revenues year over year in the HDD space. Meanwhile, product development focused on more capacity and greater speed continues. Western Digital introduced a 600 GB VelociRaptor HDD, the highest-capacity 10K RPM enterprise 2.5" SATA drive designed to compete with the emerging SSD drives. Additionally, Toshiba is now offering a 1 TB and a 750 GB internal option in the 2.5" form factor more suited for the mobile, the SFF and the all-in-one desktop lines.

Specifically, there was no change in the 3.5" SATA pricing month over month with the exception of the 1.5 TB and 2 TB capacities. In these higher-capacity drives, there has been an approximate 5 percent decline in open market pricing to the mid-$90 and mid-to-low-$120 range, respectively. Pricing for the 2.5" SATA HDDs have remained stable since the last Market Insights report. We have not seen inventory issues in either form factor for this interface. As a result, most customers are seeking price point variance purchasing opportunities.

Last, low inventory levels in the IDE interface continue. While this is impacting pricing in both form factors, the effect is much more significant in the 2.5" drives. Here we have seen $5 to $7 increases starting at the 40 GB capacity and continuing through the full range. While this is in contrast to our general assessment of the market status, it is not a result of the typical factors that drive it but rather the phasing out of the interface. Industry segments such as off-lease mobile computing sales, where the IDE interface is still prominent on a 3- to 4-year refresh and original HDD destruction is a requirement, are experiencing difficulty finding replacement HDDs and thus driving price.

Demand continues to be strong and long lead times remain the norm

Converge Semiconductors and Integrated Circuits Update.

It has been more of the same in the semiconductor and integrated circuit market. Lead times in the 16- to 24-week range are the norm and there is little change in sight. Demand continues to be strong and suppliers continue to be conservative in bringing on or increasing their capacity. The same manufacturers continue to be short, with Texas Instruments, Freescale, Cypress, On-Semi, IR, Maxim and Xilinx at the forefront. Again, certain parts within these manufacturers might start improving their lead times, but then another series of parts within the same manufacturer start to get worse. We anticipate these conditions should continue at least through the second quarter and into the third quarter of 2010.

We are also seeing a significant amount of shortages and long lead times in the capacitor market. AVX, Sprague and Kemet in the SMT tantalums, especially the low ESR series, and Murata in the ceramics are the most common shortages we are tracking. Tantalum capacitor lead times are anywhere from 16 to 26 weeks and the ceramics are as long as 22 to 30 weeks. Shortage activity seems to be increasing in the market, and we anticipate it will continue to get worse before it gets better.

Arrandale shortage may have a prolonged effect

Converge CPU Update.

As reported in last month’s Market Insights update, the long-awaited Intel Arrandale mobile CPU shortage arrived and it gathered momentum in March.

In particular, the off-road i5-430M, i3-330M and i3-350M were affected. These processors are currently not available to all OEMs, with Intel supplying first to Tier 1 OEMs along with some smaller “early adopter” gaming machine producers. This meant that the shortage was not market wide, with only the very large or niche players affected.

Throughout March we were tracking sporadic large demand on these parts while supply was severely restricted. It is unusual to find a device shortage that cannot be solved in the open market, but in March the off-road-map Arrandale was in short supply and demanding a 20 percent premium above its contract price. This shortage looks to continue through April. However, many manufacturers remain unaffected as they continue to utilize the Intel Montevina processor family, where supply remains healthy.

While the mobile market buzzed with activity, the desktop market was quiet by contrast. The retail box market offered cost savings on a range of “I” series in Europe, and this lessened the demand for its tray equivalents. The E8400 enjoyed an extended lease on life as the processor remained a high runner, but demand is expected to tail off in favor of newer models.

The repair and embedded markets continue to show steady growth and we see signs of a more healthy market in April and May. We also believe the Arrandale shortage must ease soon or it will have a prolonged effect as the entire manufacturer base may “swap-out” to the newer models.

DDR3 price gap narrows between spot and contract pricing

Converge Memory Update.

Spot market activity for DDR2 and DDR3 modules has been light while contract pricing continues to rise. Open market pricing has also remained stable with 2 GB DDR2 PC800 trading in the high $40s and 2 GB DDR3 PC1333 in the low $50s. DDR3 spot pricing has been stable for several weeks; however, with several contract price increases the gap between spot and direct is narrowing.

Demand continues to be robust for Micron memory, especially SDRAM and DDR1. Micron lead times appear to be getting longer for most SDRAM PC1333 product, and while the spot market has been an avenue of supply, pricing has been at a premium. For those users who have Samsung approved as well as Micron, product is available and pricing has been much more favorable for comparable configurations.

March 30, 2010

Revenue from customer returns

Reverse supply chain services, although gaining momentum, are still not a mainstream function for many OEMs and service depots. But given the increased efficiencies, security measures and cost savings that supply chain services offer, companies are quickly learning that best practices in this area are a must for any organization looking to maximize revenues.

Take, for instance, a large high-tech corporation I recently visited. It is a customer of Converge's Product Returns Management service and I was doing a site visit. As we walked through the warehouse, I noticed numerous pallets of hard drives taking up valuable floor space. I asked my host about them and found out that there were 200 pallets (and growing) of customer-returned drives that were not confirmed failures, yet most likely contained customer-sensitive data. The initial decision internally at this company was to have all these drives physically destroyed by a recycler -- this would have been a cost model for them.

The salesperson in me immediately saw another opportunity for my customer to not only realize cost avoidance but recoup some incremental revenues, and so I brought up Converge's ability to have the hard drives screened for physical damage, tested for functionality and securely data erased to DoD-level specifications. Any drives that failed any test or were physically damaged would be destroyed at a Converge facility with certificates of destruction provided. The hard drives that passed would be repackaged and sold into the wholesale marketplace with a Converge warranty. The customer immediately saw the value in this, vetted the processes fully and went with the proposed solution.

In the end we implemented a solid, ongoing product returns program that the company uses regularly. Not only has the company optimized the reverse supply chain, but it has realized significant revenue returns from the program, on the order of hundreds of thousands of dollars.

Of course this is just one example of how you can approach the steady stream of customer returns. The case above could easily have been for full systems, notebooks, LCD displays or any other part that is typically found inside of a PC or laptop. The important point to remember in the reverse supply chain is to consider all your options so as not to leave money on the table.

March 17, 2010

Rumors circulate around the Toshiba Mobile Display (TMD) division

Converge LCD Update.

A strong market and an upcoming game of musical chairs.
Despite an improvement of 17% over the same period last year, the sales figures on LCD TVs during Chinese New Year failed to impress panel makers. Most manufacturers had hoped to see improvement in the neighborhood of 30% prior to the holiday. The factory pricing on LCD TVs remains largely unchanged for the month of March as a result. The sixth-generation line, which is responsible for building 26-inch through 37-inch TV panels, is still keeping busy, with full production capacities scheduled through most of the second quarter. The 7.5-generation line, which builds 40-inch and larger TV panels, reveals the realities of a different market segment. Current factory lead time for 40-inch or larger panels is around 4 weeks, down from the 6-8 weeks in previous months. This is indicative of weakening demand due to seasonal factors. A price correction is now starting to appear imminent for TV panels of 40 inches and larger.

Desktop panels are experiencing price increases of 4%-6% in March due to sustained shortages, in particular on mainstream sizes of 18 inches through 22 inches. Personal computer makers are also getting ready for a healthy back-to-school buying spree. Strong demand and material shortages continue to push the desktop panel pricing higher with minimum 4-to-6-week lead time. The situation is similar for notebook panels, with factory pricing expected to keep creeping up in the second quarter. Two of the more allocated sizes are 15.6 and 17.3 inches. For the month of March, there is a $1-$2 increase on most mainstream sizes. Unless the market changes due to unexpected factors, notebook panels will likely see a modest shortage through this summer.

The industrial panel market would have seemed uneventful had it not been stirred by the recent speculation that Toshiba will be selling its TMD (Toshiba Mobile Display) division due to repeated, hefty losses over the years. According to market insiders, Toshiba is currently evaluating its TFT product offerings and planning to retire panels of certain form factors within the next 2 quarters, which include 5.7, 6.5, and potentially 12.1 inches. Toshiba is planning to bump the 12.1-inch pricing from the current level of $120 to $150-plus as the panels transition to end of life. One or more of the production plants in Japan is scheduled to shut down in July as a result. Eventually, Toshiba will exit the TFT industry altogether. A number of panel makers from Japan and Korea are reportedly in talks with Toshiba to take over the TFT business. Converge will continue to monitor its progress and its market impact in the near future.

HDD market remains strong and stable

Converge Storage Update.

Drives with the IDE interface remain in demand.
There is little change to report in the mainstream storage market month over month. We are still seeing industry reports indicating low inventory levels across the board, with strong demand in the mobile, desktop, and server segments. However, this has had little impact on pricing since our last Market Insights update, as both the 2.5 and 3.5 inch SATA HDDs have remained unchanged. Thus, while we had previously reported that factors were moving to repeat the shortage environment that characterized Q4 in CY09, this is still not the case.

Meanwhile, we are experiencing a sharp increase in demand for HDDs with the IDE interface. This is true in both the 2.5 and 3.5 inch form factors. In last month’s Market Insights, we had first reported this trend, indicating it was a result of sustained demand coupled with decreased production as manufacturers began to end-of-life this interface. As a result, prices are on the rise. In the 80 GB through 400 GB capacity range, 3.5 inch IDE HDDs command as much as a $5-$7 premium over the same 3.5 inch SATA HDDs. The 2.5 inch IDE HDD market is behaving similarly, with a 10%-15% increase seen in open market pricing.

In conclusion, the HDD market remains strong but stable. At this time, we are less certain that the current trends will ultimately result in a shortage environment. However, it does appear that the demand will continue and that Q2 will closely reflect the first-quarter activity. Last, expect the IDE market to continue on its present course.

20 week lead times have customers scooping up inventory pockets quickly

Converge Semiconductors and Integrated Circuits Update.

Shortages take hold.
The shortages and extended lead times that we have seen for the past 2 quarters continue and show very little sign of letting up. In fact, some manufacturers seem to be increasing lead times - and we are certainly seeing the activity in the market. Maxim, On-Semi, Cypress, and International Rectifier are now reporting lead times that are out past 20 weeks and prices are rising in the market as well as in franchise distribution. Texas Instruments (TI) lead times continue to exceed 20 weeks, although some of the TPS series (DC converters) appear to be freeing up. Also, TI DSP looks to be getting tighter in the market along with some of the MSP430 series (processors). Freescale processors continue to be short, as well, with little relief in sight.

There have been reports of increasing lead times from Xilinx due to wafer shortages. The increased lead times, and what some industry analysts claim to be low safety stock levels, could be somewhat concerning to customers. Also, Xilinx terminated its 23-year franchise agreement with Nu Horizons in June, leaving Avnet as its only global distributor. It will be interesting to see what effect this will have on Xilinx supply and pricing throughout the transition and until Avnet gets fully up to speed on supporting all customers.

Overall we see shortages continuing through the next quarter. We are hearing more and more about lead times extending and new manufacturers experiencing tight supply rather than lead times improving. In fact, some industry experts expect conditions to get noticeably worse before they start to improve. We have been observing pockets of inventory being bought up quickly. With so many customers out looking to fill shortages, companies need to act rapidly to secure product. With current market conditions, some customers are even buying buffer stock to ensure delivery.

Intel Arrandale processor shortages may have manufacturers scrambling

Converge CPU Update.

The shortage of the Intel Arrandale has arrived.
In February the long-awaited shortage of the Intel Arrandale processor arrived, while the desktop market was quiet as we waited for the new Intel I7 high runners to emerge.

February tends be an unusual month, as the Chinese New Year disrupts much of the production and supply to the CPU market. This year was no different, as the first half of the month passed with barely a ripple in the CPU market. Consequently, a flurry of preholiday demand saw OEMs stocking up on the older end-of-life technology, T6s, E2220s, T4s, P87s, etc., while manufacturers appeared to adopt a wait-and-see approach to the new processors currently available on the market.

Perhaps this cautious wait-and-see approach was ill-advised. February closed with shortages on the lower-end off-road-map Arrandale mobiles. The I3-330M, I3-350M, and I5-430M processors staggered into allocation and have remained steadfastly so as of the writing of this article.

Also, we are tracking cost-savings opportunities with I7-920, I7-820, and I5-650 processors with interest. In addition, the AMD Opteron server parts are creating attention, with cross-regional pricing gaps being significant and the 2435 and 8439 SE selling at 20%+ below their list prices in February.

DDR2 module pricing rebounds while DDR3 is in short supply

Converge Memory Update.

After a three-week decline in 2 GB DDR2 module pricing, the market rebounded slightly in the first half of March. Spot market pricing dropped below $40 for a brief period, but has since settled back in the low $40s as box builders have taken advantage of the low pricing. Converge believes that DDR2 pricing will remain stable to slightly up over the next month. There’s still plenty of demand for DDR2 memory to support another uptick in pricing over the next 2 to 3 months.

DDR3 remains stable ahead of what many believe will be the busy season as the industry heads into the second quarter. As previously stated, Converge believes the DDR3 module market will experience shortages before the second half of 2010 approaches. Although there is product in the spot market, quantities are not significant and could easily be consumed through a couple of large orders, leaving the market with a shortage. As we head further into 2010, there will be a higher adoption rate for DDR3 memory, which could add to the impending supply strain.

March 3, 2010

On-site shredding ramps up with new technology

Customers who use our on-site data destruction service appreciate the extra security and convenience of having a fully-equipped shredding truck deliver data destruction capabilities right to their door-step. And now the on-site destruction services are even better.

We’re pleased to be able to offer a new, state-of-the-art truck that can shred 500 – 600 assets per hour. I recently saw it in action and my first impression was how quiet it is compared to past generation shredders. But even with the lower noise level and high-tech interior, you may choose to watch the destruction process on live video feed from the comfort of your office. The entire interior is monitored by security cameras. You’ll see each asset barcode scanned, then dropped into the shredder, and the shredding gears as they grind up the material into cornflake-sized pieces. If the pieces are too big, they are automatically forced to be re-processed until they are small enough from a data security standpoint.

When all your assets have been destroyed, you’ll get the video on DVD and a spreadsheet listing each scanned asset, plus Converge’s Certificate of Recycling. The tiny shreds are then further processed into grain-sized particles and properly recycled in the U.S., completing the full ITAD process.

IT asset disposition has never been easier or more secure. I’d like to hear what you think. Are on-site destruction services overkill, completely necessary for corporate security or somewhere in between?

February 17, 2010

Merger mania buzzes the LCD market

Converge LCD Update.

Hon Hai's (Foxconn) upward integration strategy to acquire CMO has moved along since the merger between CMO and Innolux was announced in November. To have the merger make sense, the new company, Chimei Innolux Corporation (CIC), is planning to take several cost-cutting measures on its future LCD production. One strategy to drive the costs down is to modify the mechanical design so that future products will be strategically configured to work with Foxconn's display applications across the line. This potentially will make CIC's future products less comparable with the mainstream offerings from other panel makers. Meanwhile, the new design will likely allow CIC to enter a niche market with improved profit margin. This also means that the open market will start seeing less liquidity on the CIC panels as a major portion of the new company's production output is allocated to its mother company, Foxconn.

In other areas of the market, the shortages on polarizer, driver IC and mother glass continue to hinder LCD productions globally. Many production plants throughout Asia are suffering from lowered capacities in February because of the weeklong Chinese New Year holiday. The shortage on desktop panels worsened because most panel makers underestimated the strength of the economic rebound. Stronger-than-expected demands from corporate clientele, in combination with those from various industries, have exceeded the overall production capacities allocated to desktop LCD by approximately 30% in the first quarter. In response, factory pricing rose again in February by 4%-6% (or around $4-$5) for mainstream sizes. Factory lead time stays at four to six weeks with deliveries often getting pushed back.

Television panel pricing stabilized this month with the only exception being 32", which goes up another $5, with an eight-week lead time quoted by the factories. The Chinese market remains an important consideration for panel makers when strategizing future pricing. The sales numbers during the Chinese New Year are expected to be relatively strong but not too strong. Many customers are taking a wait-and-see approach. This results in high inventory levels in the distribution channel despite the material shortage. It seems that TV panel pricing could be due for correction as we move into the second quarter.

Notebook panel pricing is again up by $3-$5, particularly for sizes between 14" and 17.3", with 17.1" and 17.3" being the most allocated. The 10.1" panels are also showing signs of shortage as manufacturers allocate some of the capacities to 15.6" and 17.3", where demand is among the highest. Production planning for notebook panels seems in line with actual demand. Panels featuring CCFL backlight are still among the most sought in the market, especially the 15.4" with matte polarizer. Of the most allocated, LG-Philips LP171WP4 and AUO B173RW series are two of the models in high demand in today's market.

The industrial panel market fluctuates little due to diverse usages and applications. Converge sees demand persist for STN models such as Sharp 6.4" and 8.4".

Expect HDD prices to increase along with shortages

Converge Storage Update.

The storage market pauses before anticipated race
In the January edition of our Market Insights Storage Update we projected a positive long-term outlook for the HDD market with some near-term uncertainty as we emerged from the holiday period. At the midway mark of Q1 CY10, we expected a clearer picture of the current status of the market. However, presently this is not the case.

Recent HDD market analyst reports continue to predict year-over-year unit volumes to increase by 15%, with some stating that sales levels have recovered to pre-recession levels. Further, analysts expect prices to increase as supply remains tight vs. demand. Meanwhile, the shortages on 750 GB and 1 TB drives seen during the holiday run-up have subsided, at least temporarily, with pricing softening at this time. We also expected the shortage to broaden to the 1.5 TB capacity. Not only has this not occurred yet, we have actually seen a drop in pricing from the $105-$110 range to sub-$100 levels with little secondary market activity.

There has been little change in the 2.5" SATA HDD market over the past three months. Demand remains strong for the 160 GB thru 500 GB capacities in the 5400 RPM speed. It appears that supply is adequate and most manufacturers are shopping for cost savings. However, there is steady part-number-specific service demand that commands premium pricing.

Last, there is growing demand for IDE interface HDDs in both the 2.5" and 3.5" form factors. This is not a product of increased consumption but rather of decreased production coupled with continued service requirements as well as refurbishment of older technology to support trailing-edge markets. The demand has been stable month over month, but supply is diminishing. The result is an uptick in pricing for 80 GB through 250 GB in the desktop segment and, to a greater extent, the 40 GB through 120 GB capacities in the mobile segment.

In conclusion, we believe the current state of the HDD market is not indicative of the long-term outlook. This is historically a slow quarter for storage space, and there are too many opposing variables to sustain this course. Looking forward, we expect prices to tick up moderately as we shift back to more of a shortage environment across the mainstream capacities in both segments and interfaces.

Semiconductors and ICs as hard to find as a clean car in snowy New England

Converge Semiconductors and Integrated Circuits Update.

Expanding lead times fuel market
The market is settling into a fairly consistent pattern of shortages and extended lead times, which is being driven by the following factors:

  • Standard Logic shortages are continuing with no near-term end in sight. Texas Instruments (TI) is on allocation, while NXP, Fairchild and ST Micro are all running lead times of 12 to 20 weeks.
  • Microcontroller shortages are not easing, with Atmel now joining Freescale, TI and Infineon in having some lines out to 20+ weeks. Freescale's Coldfire and TI's MSP430s are the tightest of the bunch.
  • Altera and TI programmable logic and Altera and Freescale DSP lead times have not changed over the last eight to 10 weeks, while over that same time period Broadcom's networking devices (Ethernet switches, transceivers and controllers) have tightened.
  • Lead times on optoelectronics (couplers and LEDs) have risen steadily over the last two months with some lead times stretched out to 28 weeks on Vishay couplers and 16 weeks on Osram LEDs, with several lines on allocation.
  • The most highly visible shortages right now are in the analog arena, with data converters, op amps and voltage regulators. ST Micro is on allocation with its op amps and voltage regulators, while lead times on TI data converters are in the mid-20s and pressure to increase some prices is increasing.

Supply remains stable for new Intel I9, I7, I5 and I3 families

Converge CPU Update.

Supply and demand balance the spot market
In January, the new Intel I9, I7, I5 and I3 families began to flow through the open market. Supply appears stable, and the shortages that had made the start to 2009 so memorable did not materialize this year.

Otherwise, January was stable, with respectable demand across all of the niche markets. Lead time offers, beyond the Chinese New Year holiday, indicated that pricing on the new models would soften in the coming months. However, there are neither large shortages issues nor price gaps with the new product lines.

New off-road parts and the spot market.
T6400, T6500 and T6600 are part numbers in great demand in the open market. These parts are sold directly by Intel to only a select few OEMs, meaning the direct channel is the only place to locate a significant quantity of material. P7, T42, T3 and T5 are all parts following the same principle. Seventy percent of CPU sales are now in this area, with market prices ranging from $40-$170. Intel prefers to guide smaller laptop OEMs toward the higher end of the CPU market, and they run from $200 upward. This places the spot market into the center stage as a solution for the smaller OEMs.

For new off-road parts, Converge has been tracking spot market offers, but pricing does not currently interest OEMs. For example, the new $100 model i3/330m is offered in the spot market at $110-120+; however, the T6600 is priced at far less and the bare bones are still in stock. We have also seen that the part is being offered in a bundle with chipset i3/330 +hm55, but so far the quantities available remain elusive. The post-Chinese New Year market will reveal opportunities as pricing and supply settle down into definable patterns.

Indications point to an early uptick in the memory market

Converge Memory Update.

DDR3 demand expected to strain supply channel
Activity in the DDR3 market has shown signs of slowing down during the last two to three weeks. Converge attributes the slowdown to the time of the year and the arrival of the Chinese New Year holiday. Generally, February can be a slow month for activity as the box builders begin to get an idea of how their upcoming forecasts are going to materialize. Due to the slowdown, pricing has retreated a bit, especially in the notebook market. The 2 GB DDR3 SO-DIMM has dropped to the $47-$48 range for the first time in three months. Also, 2 GB DDR3 desktop modules have dropped to the high $40s as product has become available in the spot market. Converge believes DDR3 activity will resume in the first half of March and pricing will begin to climb back into the $50+ range for all 2 GB modules.

March has historically been a busy month for memory as box builders begin to fulfill their forecasts. Industry analysts are predicting the memory market to start taking off in the second half of 2010, but Converge believes the uptick in spot market activity will begin sooner. Many of the box builders are reporting an earlier-than-expected migration to DDR3, and that will put a bigger strain on the supply channel.

Another example of the early migration to DDR3 is the steep decline in DDR2 spot pricing. The spot price for 2 GB DDR2 modules has dropped from a high of $54 to $40 for both desktops and notebooks. There's plenty of supply, and we are seeing large quantities of excess for the first time in almost a year. We don't believe the DDR2 market will drop too much further as second-tier box builders take advantage of the low pricing.

The SDRAM market continues to experience serious shortages. Micron in particular is on the verge of allocation on most SDRAM product, and the spot market continues to rise at a rapid pace for all Micron SDRAM. For those using only Micron material, it may be a good time to start qualifying other manufacturers.

February 15, 2010

Unlimited Liability

I’m often asked by enterprises about unlimited liability, and how a corporation can set up their IT asset disposition process so that once they turn over their assets for disposal to another party, they are no longer held liable for any potential breaches.

The straight answer is that there is no such thing as unlimited liability. Companies are still very much accountable for what happens downstream with that asset. That’s why a proper ITAD process is so important.

A third party provider can sign a contract promising to absorb any and all liability arising from an incident but the reality is that the limit to that liability is maxed out at the value of that provider’s assets. If you have a claim that exceeds the value of the provider’s assets, the provider may go out of business covering what it can of the claim, but your organization will still be responsible for the balance of the claim.

An agreement for unlimited liability also doesn’t address the other costs borne by your organization such as damage to reputation and loss of customer goodwill, notifying affected individuals of the breach, and implementing corrective actions to ensure it doesn’t happen again.

The bottom line is that a third party ITAD provider will provide a layer of liability protection, but ultimate responsibility for your organization’s assets always remains with the organization. Make sure you investigate your provider thoroughly and have a complete and transparent understanding of their disposition process, reputation and fiscal health. If you can look under the rocks and still be glad you did, you’re on the right path.

February 4, 2010

Study shows organizations are taking more measures to increase data security

The Ponemon Institute issued their fifth annual Cost of a Data Breach Study in January. While none of the findings are exceptionally surprising, it is heartening to see that in 2009, organizations started paying more attention to and dedicating more resources to the prevention of data breaches than ever before.

The study focused on 45 organizations in 15 industries who experienced data breaches in 2009 and volunteered to share their information for the purpose of the study. The number of records lost or compromised in each incident ranged from 5,000 to over 101,000.

Here's a snapshot of some of the data from the study:

  • The average cost of a data breach increased from $6.65 million in 2008 to $6.75 million in 2009
  • The average cost per record compromised in 2009 was $204
  • Data breaches from malevolent attacks doubled between 2008 and 2009
  • Customer turnover from a data breach accounts for the majority of the cost
  • Healthcare, pharmaceutical, communications and financial services firms are those most likely to be affected by abnormal customer turnover
  • The average cost per compromised record is higher for companies who notify victims quickly
This last bullet affects me from two standpoints. First, as a businessperson, I understand the logic put forth by the Ponemon institute that rushing to notify customers of a data breach could end up costing more because of inefficiencies during discovery, notification and restitution. It makes sense that companies who methodically study the breach, wait to see the full extent of the damage, and carefully take action steps will be able to keep costs more contained.

But as a consumer whose personal information is in the care of hundreds, maybe thousands of companies around the U.S. and globally, I want to know immediately if my personal information has been lost or compromised. And I want the offending organization to take steps to protect my information without delay. In addition, state laws and the proposed federal Data Accountability and Trust Act require data breach victims to be notified immediately or within a specific time period.

I encourage you to download the study and consider its implications for your organization. And send me your thoughts about data security and data breaches too. Even though the topic is more commonplace than ever before, new ideas and process improvements are always called for.

January 26, 2010

Choosing the right ITAD provider: Look at operational, financial, environmental and liability capabilities

Choices. Everyday we are faced with choices from the simple (what color shirt to wear) to the more complex (what to get my son for his birthday). Making the right choice can be easier when you do your homework and have the right information to make an educated decision.

The same holds true in choosing the right IT asset disposition supplier. Because enterprises are looking at a long term partnership, I recommend that companies look at service providers through four primary areas: operational, financial, environmental and liability.

First, what are their operational capabilities? What type of quality certifications do they have? You need to know that the work can be performed at a high-level on a repeated basis.

Second, from a financial perspective –What is their financial strength? Where do they receive their funding and how many years have they been in business?

Third, understand their environmental policies, and make sure that they have the appropriate permits to handle your e-waste. An ITAD provider should have a clear landfill and exportation policy. You certainly want to make sure that your assets aren’t ending up in a landfill, or exported to other areas of the world for ultimate disposal.

And fourth, from a liability protection perspective, what levels of liability protection can they provide to you? Are they going to be able to give you indemnification for any data security breaches, and indemnification for environmental compliance?

If there are other areas you consider important to evaluating an ITAD provider please let me know your thoughts.

In June of 2010, Converge was acquired by Arrow Electronics. Our ITAD services are now under Arrow Value Recovery. For more information, please visit www.arrowvaluerecovery.com.

January 13, 2010

FedEx introduces its first Boeing 777

Converge Freight and Compliance Alerts.

In January FedEx will put the first of an upcoming fleet of Boeing 777 freighters in the air. FedEx will be the first carrier to put the now-largest freighter into circulation. FedEx has 15 more of these crafts on order to create the largest global fleet. Other airlines with 777 freighters on order or in testing include Emirates SkyCargo and Air France.

"This is quite a machine. For those of you who don't know, this airplane will fly 6,000 nautical miles with almost 100 tons of payload, which means it's going to revolutionize our system; we'll be able to leave later [and] give our customers more processing time. We'll burn about 18% less fuel; the airplane makes less noise so it will also be good for our environment," stated FedEx chairman, president and CEO Frederick W. Smith during the October homecoming event introducing the B777F to the Memphis team.

The first plane in the fleet is named Saad after the son of a Newark terminal employee. FedEx held a company-wide contest to name the plane.

As FedEx is Converge's primary small-package carrier, we are looking forward to later cutoffs and lower FSCs (fuel surcharges) as the fleet is fully onboarded.

LCD shortage intensifies in first quarter

Converge LCD Update.

Few could forget how the LCD market staggered and tumbled just a year ago. Well, things have changed in just a short time, with panel makers having a tough time fulfilling worldwide demand.

One factor that contributes to the current market dynamic is the recent shortage on certain key components, which include polarizer, driver IC and glass. One other factor is seasonal, as most of the LCD manufacturers cut back 10-15% of production capacity during the December holidays. The more encouraging factor has to do with an increase of overall demand for LCD panels from all major markets. Customers in Europe, in particular, are placing additional forecasts to refill their inventories, which were nearly depleted amid strong December sales. Demand from Asia is also healthy, as Chinese New Year is a few short weeks away. Among various applications, TV panels are having the toughest time reaching their customers.

Lead times quoted by most factories have extended to 12 to 16 weeks on average for TV panels, particularly those 24 inches and under, with fulfillment rates dropping to around 30%. This means that many factories are able to fulfill only 30% of their existing orders. Although January pricing had not been officially released at the time this report was written, it is safe to expect a 6-8% increase from the current level. Supplies on TV panels over 24 inches seem to be in better shape, as fulfillment rates are in the 75% range. Lead times have also extended from the six to eight weeks seen in December to eight to 10 weeks in January. A 3-5% increase in pricing is anticipated.

The shortage on desktop panels of 18.5 inches through 22.0 inches continues in the first quarter of 2010. Prices are expected to go up by 5-8% in January for the mainstream form factors, with the current fulfillment rate at approximately 50%. Most panel production plants are fully booked through the end of March. Factory lead times have also extended to six to eight weeks. Notebook panel supplies will be subsequently affected as the shortages spill over. Expect to see a 3-5% increase for the month in pricing for 10.1-inch through 17.3-inch notebook panels. Although the shortage remains moderate, with roughly 85% fulfillment rate for LED models, the old-school CCFL models are becoming depleted in the channel. Market pricing for notebook panels will likely become less stable going forward.

The demand for industrial panels remains healthy. Certain advanced desktop models, including the LM190E08 and LM201U05 series by LG Philips, are popular among industrial customers. While CMO and AUO continue to gain a foothold in the industrial panel market, especially in the range of 5.7 inches to 12.1 inches, Sharp and Mitsubishi remain a top choice for many discriminating users.

Expect continued progressive demand and relatively stable pricing in the near term

Converge Storage Update.

Positive signals and demand drive market.
Heading into the December holidays, the market was experiencing shortages in higher-capacity 3.5" HDDs, especially the 1TB capacity, as well as strong demand for 2.5" SATA HDDs on a price-point-variance basis. At that time it was speculated that these trends would continue into the midway point of Q1 CY10. As we emerge from nearly two weeks of holiday downtime, we don't have specific data to confirm or deny this speculation. Further, we have yet to pinpoint concrete open-market pricing for the HDD range in question. There was activity during this downtime, especially in the ID space. However, we don't feel that the pricing and volume data necessarily translates to the January time period.

A broader look at the market suggests the trend will continue. The majority of analyst reports that we reviewed are predicting double-digit PC growth rate (10-15%) in 2010. Several factors are believed to contribute to this, including a recovering economy, falling unit prices, increased IT spending projections and operating system upgrades. These factors translate to a positive outlook in both the 2.5" and 3.5" markets. Seagate and Western Digital appear to be the favorites to capitalize during this period, as both manufacturers have product offerings for the PC (mobile and desktop) and storage system space. Additionally, each possesses a bridge product between the relatively slower SATA drives and the emerging SSDs. But don't look for a significant transition to solid-state drives until there is more widespread availability of directly compatible motherboards.

In the near term, we expect continued progressive demand through the emerging capacities, speeds and cache sizes in all major form factors. Generally, pricing is expected to be relatively stable based on projected market growth. Lastly, continuation of the shortage environment in the 3.5" space will depend on major manufacturers retreating from their conservative production approach in 2009. However, we expect them to be tentative early on.