legislation impact on the ems industry

ELECTRONICS MANUFACTURING SERVICES

© 2006 Sanmina-SCI Corporation. Sanmina-SCI is a trademark of Sanmina-SCI Corporation. All trademarks and registered trademarks are the property of their respective owners.

Legislation Impact on the EMS Industry

Sanmina-SCI Confidential

Agenda

Legislation Evolution Key Focal Points

Challenges Asset Management Supply Chain Manufacturing Capacity Exemptions

Due Diligence Considerations Engineering Concerns Cost Key Actions OEM Supply Base EMS Partners

WEEE Summary


RoHS and WEEE Legislation

China Has a draft in place which is projected to be put into law by the end of calendar

year 2006USA – Maine Has put a WEEE process into law Manufacturers of computer monitors and televisions only

USA – California Projected to put RoHS into place in the next 12 to 24 months Currently has a WEEE law (SB20)

USA – Maryland Has a WEEE law in place: Beginning January 1, 2006, the pilot program requires

computer manufacturers to register with the state of Maryland before they are allowed to sell new computers in the state.

Japan has been removing lead from EEE since 1998Japan – WEEE Laws - Established June 2000/2001 Use of recyclable resources and reusable parts Design for product longevity Design for disassembly Home Appliance Recycling law

Europe is the prime focus today but many other countries are following suit.


Geographic Evolution


Why is focus on compliance critical?

Penalties and fines are planned for those corporations and individuals that do not comply.

An EMS firm has to protect its customer base and itself. A customer subjected to “stop ships” will drive mutually unsatisfactory

distribution efforts.- The “Sony Playstation event”

An EMS provider is exceptionally well-positioned to assist the customer in compliance.

- The EMS provider resides in the “center of the supply chain.” Compliance-related processes must be put in place that demonstrate due

diligence.- Customer base- EMS organization- Supply base

Legislation Focus


Challenges and Opportunities

Legislation volatility Geographic variability Implementation timing/strategies Interpretation

Supply chain readiness Data acquisition Component availability

Customer direction Exemption uncertainty Component availability Product design capability

Resource availabilityCapacity balancing

Business opportunities Component alignment/design rationalization First out-of-the-gate


Challenges – Asset Management

Risk Supply transition

- Drives duplicity Error potential is significant Excess and obsolete inventory a concern Customer relationship Cost

Mitigation strategy Intimate customer coupling ASAP

- Transition timing- EOL strategy- Portfolio attributes

Automation of information database- Spreadsheets cannot do the job

Source real-time legislative insight Act NOW


Challenges – Supply Chain

Areas of focus Some suppliers are not changing part numbers Cost Integrity of supply

Mitigation strategy Customers

- Understand strategies today- Drive release of RoHS-compliant BOMs- Need to drive customers to release RoHS-compliant BOM/AVLs with enough time to drive suppliers- Product redesign lengthy alternative

Materials management- Prepare transitional plans and determine segregation

strategy Suppliers

- Understand capability NOW


Challenges – Manufacturing Capacity

Capacity constraints during the 2006 transition year will be challenging Lead-free manufacturing

- SMT and T/H equipment deployment- Expected lead time of up to six (6) months

Hex-chrome free manufacturing- Plating lines retrofit

Surge of demand for both RoHS-compliant and non-compliant products considering current limited visibility for demand

Unknown process or technology-related capacity constraint issues

- Line down- Increase in set-up time- New technical issues

The tin whiskering debate Capital equipment lead time Demand mix volatility


Component availability Component availability – Most vendors have indicated there will be a short

overlap of lead-based and lead-free components before switching to lead-free only.

We do not see this as a major issue for most components.

BGAs All lead-free BGAs are using a SAC alloy ball [Tin(Sn)-Silver(Ag)-Copper(Cu) BGAs cannot use a mixed process – lead-free BGAs in a lead-free process and

lead-based BGAs in a lead-based process only. Some new BGAs are being released in lead-free only packages. Can become a bottleneck to maintaining the exemption.

Many companies are choosing not to use their exemptions. Why? Component reasons – key components no longer available in a leaded format. Market strategy – customers want to be viewed as a “green company.” Many are unwilling to qualify products twice, first in a lead-free assembly stage,

and then subsequently in the lead-free assembly stage, plus lead-free components.

Challenges – RoHS Exemption Considerations


Due Diligence Considerations

Documentation from the Supply Base Certification to ensure constituent substances Upstream considerations Analysis and verification Supply base integrity assessment

Customer Direction Documented direction (business as usual) ECN = Fundamental basis of change control Customer variability

Geographic dependencies Divisional dependencies Portfolio centric

EMS Certification Downstream customer requirements Verification procedures Integrity of full cycle due diligence

Legislation Evolution Geographic centric (WEEE) Regional dependencies


Engineering: Why Do We Care About Tin Whiskers Growth?

These whiskers can become large enough to short across two lands and can carry sufficient current to cause equipment malfunction.


Engineering: Process Control

Quick Test: Which BGA is lead-free?

The inside structure of the solder joints


Lead-Free Solder Joints

BGA BGA

BGAPTH


Cost Considerations

Equipment 75% of reflow ovens, 100% wave soldering equipment, over 65% of rework

equipment need to be replaced Estimated cost of equipment, support software and hardware upgrade and

replacement can be as high as $4M/manufacturing site Deployment of control instruments and tools for hazardous material

detection and monitoring will require sizable investment (as high as $100K per site)

Manufacturing Process Qualification Manufacturing capabilities Gap Analysis including equipment, process,

material and skill Test vehicle design Process development, validation and audit Manufacturing system deployment, verification and audit Skill curriculum development, training and certification Qualification run, result analysis and reporting Certification Average cost of qualification per site is about $350K


Cost

Compliance is not free Industry will incur costs complying with legislation

Supply base Incremental effort expended on conversion

Manufacturers will see increased costs Transitional incremental resource allocation Training Process development/upgrades

- Capital- Engineering resource allocation

Documentation software and programming Incremental audit and reporting activity

Mitigation strategy Work with suppliers and customers NOW to create

transition plans Optimize use of exemptions

- Product or geographic-based


Key Actions: OEM

Assign the resources Empower the resources

Strategy and planning Are you going to be compliant? If so, how?

Will you exercise your exemptions? Build two versions of your products?

Determine outsourcing partner AVL alignment Product design alignment Navigation of the choppy waters

Supplier selection – RoHS-capable Qualify new components/suppliers

Determine and implement audit strategyClosely follow legislation evolutionStart NOW


Key Actions: Supply Base

RoHS-complaint products in production by Q2-05Continued availability of pre-RoHS parts Full traceability of compliant components Component part number (MPN) changes Component and packaging identification per JESD97

Warranted compatibility of pre-RoHS and RoHS-compliant componentsQuality and reliability equal to or better than pre-RoHSSupplier process integrity to prevent contamination“Certificates of RoHS Compliance” with each product shipmentContinued communication regarding: RoHS-compliant part number (P/N) alternatives Supplier roadmaps, schedules and sample availability Product transition notifications (ECN/PCN)


Key Actions: EMS Provider

Planning- RoHS Planning- WEEE Planning- End-of-Life Planning

Manufacturing - Lead-free Soldering- Dual-processing/inventory- Process qualification

Products and Components- Viking memory modules- Optical modules- Cables- PCB Fab- Backplanes- Newisys products- Enclosures

Component Engineering- BOM Analysis- Supplier Selection

Design - Design for RoHS- Design for WEEE- Design Assessment and Cost Reduction- Marking and Documentation- Product Qualification

Reverse Logistics- WEEE Processing- Take Back and Analysis- Repair and Refurbish- Disassembly and Tear Down- Recycling

The EMS supplier will play a different role to every customer. The EMS role can either be the Brain, the Brawn, the Voice to the Supplier or a complete Turnkey Approach. Sanmina-SCI Green Services


Impact of WEEE

Recycling efforts to be demonstrated Aug 13, 2005 Jan 1, 2006

WEEE affects the “producer” The product brander The importer/exporter of record The distributor The manufacturer in Europe

Requirements Label products advising WEEE recycling

capable Demonstrate capability to recycle 75% by

weight of EOL product


Summary

RoHS / WEEE and variants are here to stay worldwide

RoHS compliance is not a mathematically taxing issue Make a product out of compliant components Ensure the assembly process is compliant Be able to prove the above

WEEE will be challenging for the industry Partner with a trusted organization

Legislation tomorrow will not be what it is today Monitor legislative needs in real time

Assign the resources

Do it NOW


Remember …

ELECTRONICS MANUFACTURING SERVICES

© 2006 Sanmina-SCI Corporation. Sanmina-SCI is a trademark of Sanmina-SCI Corporation. All trademarks and registered trademarks are the property of their respective owners.

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legislation impact on the ems industry

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