A turning point: we survived the RoHS deadline, but what now?

WELL, WE MADE it to July. The new world of RoHS is officially here and we will all supposedly be better for it. But then again, the more things change, the more they stay the same.

Remember Y2K? Think back to 12:01 AM on Jan. 1, 2000. Reporters were strategically stationed at various national and international emergency locations poised to start announcing all of the infrastructure failures caused by non-Y2K compliant computer controls. Huddled in front of my TV with flashlights and candles, I listened as the first report came in ... a power failure affecting 375 people in a remote African town! Then, nothing. The world made it through that deadline without planes crashing or computers resetting to January 1900.

But with the anticipated tidal wave of problems fizzling, everyone was lulled into a sense of complacency. In fact, the really devastating effects of Y2K were just beginning to play out, and while none of the individual symptoms were significant, they turned out to be disastrous when combined. Over-anticipation of demand for electronic Y2K-compliant products and excess inventory to compensate for a supply chain that was to be disrupted triggered a downturn that the manufacturing industry had never seen before.

So here we are again: An arbitrary date, punitively set, for industry to comply with a legislated desire, has caused a significant problem for industry. Like Y2K, the initial date has passed and the industry seems to have weathered it. What comes next?

If you start by looking at the dark side, it would appear that we are on course for a disaster. Two scenarios are most likely to play out. In the first, all goes well for a year or two before a series of product failures affecting large companies and high-visibility product leads to a class-action lawsuit. The suit claims defective electronic product is at fault--product designed, fabricated and assembled to be RoHS-compliant but failed because of questionable processes. All parties involved claim they used the best available technology and RoHS-compliant processes. However, the lawyers capture the headlines by painting a picture of non-compliant, shoddy workmanship. The companies involved are taken to the cleaners. Other companies, advised by their legal staff, overreact with intensely critical review of product. The industry financially hemorrhages dealing with the resulting litigation and overzealous rejection of product by customers.

In the second scenario, companies grapple with the different design and process parameters associated with RoHS-compliant materials, combined with an inability to pass along the higher raw material and process costs associated with RoHS-compliant manufacturing--all while in a period of higher overall inflation--leading to lower manufacturing yields that cause another prolonged, more serious bout of financial failure for our industry.

But then again, maybe RoHS will result in a much-needed and long overdue shot in the arm for our industry.

With any fundamental change to process comes the need for product development, which results in the need for prototypes to enable those new products to enter the market. A healthy increase in demand for prototypes helps everyone in the industry--especially those in hard-hit North America and Europe. Plus, prototypes lead to production, which helps the industry globally.

Many companies do not plan on ending production of their non-RoHS-compliant products but rather intend to faze them out over time. This would indicate that short-term, electronic production could actually increase, as some companies will have similar RoHS-compliant and non-RoHS-compliant products running in tandem for a while. For those companies that manufacture products for commercial and military applications, running two versions could continue for quite some time.

The other positive side to RoHS is that process change demands new equipment. New equipment can improve throughput, making a positive difference to the bottom line and helping to offset other inevitable cost increases. In short, some companies will become more--not less--productive because of the changes they need to implement to comply with RoHS demands.

Sometimes the stars align, and this may be the case with RoHS compliance. RoHS requires everyone in the supply chain to use different raw materials. These materials are more costly. Most of the new and old materials used in the fabrication and assembly of printed circuit boards contain a significant amount of commodity metals, such as copper, tin, silver and gold. Commodity prices have been increasing dramatically over the past couple of years. Finally, all of us know about petroleum prices, and petroleum is the feedstock of plastics, film and laminate. Combine all of these and you see that our industry finally has an opportunity to increase pricing and improve margins. Such a trifecta of opportunity does not come along very often. Our opportunity to enhance profitability is here.

If history repeats itself we will have a continuing series of challenges that will either set the stage for disaster or provide a great opportunity for all.

PETER BIGELOW is president and CEO of IMI (www.imipcb.com). He can be reached at [e-mail].