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Article Highlights:
- Component obsolescence is defined as when a part is no longer manufactured.
- Product redesigns triggered by part obsolescence range cost between $20,000 and $2 million.
- In 2023, approximately 473,000 parts reached their EOL, a decrease of 37% since 2022.
- Nearly 30% of all EOLs are do not have a PCN issued beforehand.
- Three key drivers of obsolescence are low market demand, low-cost competitors, and government regulations.
Original equipment manufacturers (OEMs) in the electronics industry must regularly navigate an unstable, ever-shifting supply chain that stubbornly resists continuity or cohesive patterns. Large, recognizable OEMs like Apple, Samsung, Sony, and Dell are responsible for sourcing thousands of electronic components from a sprawling network of suppliers whose inventories are constantly changing based on a multitude of factors. One of the largest and most consequential of these is electronic component obsolescence, a phenomenon that occurs when a supplier discontinues manufacturing of a specific component.
What is Component Obsolescence?
In its most fundamental terms, component obsolescence is simple to define: a part becomes obsolete when it is no longer manufactured. This typically happens either because demand has dropped to low enough levels that it is not practical for manufacturers to continue to make it, or because the materials or technologies necessary to produce it are no longer available.
The sheer breadth of component obsolescence provides perspective into just how influential this feature of the electronics landscape is. According to data from Z2Data’s report, Obsolescence Trends in 2024, nearly 750,000 parts went obsolete in 2022. While that staggering figure declined in 2023, last year still saw over 470,000 components reach end of life (EOL). In general, manufacturers operating in the electronics industry can expect hundreds of thousands of components to go obsolete every year, with major disruptions like the COVID-19 pandemic bearing the potential to push those figures significantly higher. Research from our report indicates that hundreds of companies are affected by part obsolescence on an annual basis.
In general, manufacturers operating in the electronics industry can expect hundreds of thousands of components to go obsolete every year, with major disruptions like the COVID-19 pandemic bearing the potential to push those figures significantly higher.
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What is Component Obsolescence Costing Companies?
Product redesigns triggered by part obsolescence range between $20,000 and nearly $2 million.
The costs associated with end of life, meanwhile, are almost always substantial. Product redesigns triggered by part obsolescence range between $20,000 and nearly $2 million. Industry research has found that fully 10% of aerospace manufacturers’ component budgets are spent managing obsolescence risk. It’s worth noting, too, that resisting the necessary measures to respond to EOLs by desperately clinging on to obsolete parts is exorbitantly expensive. The prices for chips after manufacturing has been discontinued can be 10-15 times the original costs.
The prices for chips after manufacturing has been discontinued can be 10-15 times the original costs.
For OEMs and other organizations that rely on interconnect, passive, and electromechanical (IP&E) parts and semiconductor devices, developing a studied, nuanced grasp of how component obsolescence works can help them be more prepared when an EOL notice comes down the pike and impacts one of their bills of materials (BOMs). Obsolescence risk is an implacable force of disruption in the electronics industry—one that shows no signs of abating. Companies that understand how it works and plan accordingly can effectively mitigate its financial and operational fallout.
The Lifecycle of Electronic Components
To gain a better understanding of how part obsolescence works and why it’s become such an inescapable aspect of the electronics industry, it helps to be aware of the electronic component lifecycle. While manufacturers aren’t necessarily designing and developing electronic parts with a specific lifespan in mind, almost all components adhere to a finite trajectory. This begins with their introduction into the marketplace, moves through periods of growth, maturity, and decline, and concludes with the end-of-life notification that signals imminent discontinuance.
The Key Factors Behind Component Obsolescence
The statistical reality of part obsolescence is undeniable. Hundreds of thousands of electronic parts reach EOL annually, and OEMs and their component engineers are regularly navigating through a thicket of PCNs that require them to tweak BOMs, identify cross-references, and carry out redesigns. The forces driving component obsolescence, however, are not always as concrete and tangible as an official end-of-life notice from a supplier. Companies that familiarize themselves with the various forms of obsolescence risk and the prevailing reasons why manufacturers discontinue parts are better prepared for unpredictable—and often shorter-than-expected—component lifecycles. Over time, this knowledge and experience can help organizations develop more effective obsolescence management strategies.
Companies that familiarize themselves with the various forms of obsolescence risk and the prevailing reasons why manufacturers discontinue parts are better prepared for unpredictable—and often shorter-than-expected—component lifecycles.
Driver #1: Low Market Demand
According to Z2Data’s report, Obsolescence Trends in 2024, over three-quarters of all component obsolescence events are attributable to low market demand. That’s a substantial percentage, and one that speaks to the fact that it’s OEMs and other customers—rather than the electronic component manufacturers themselves—who are really driving obsolescence.
But why does market demand decrease, and why has it been triggering the rising rates of part obsolescence the industry has experienced over the past decade? One of the most important variables to consider here is the technological advancements being made by OEMs. Companies manufacturing everything from smartphones, computers, and video game consoles to cars and home appliances are introducing the next generations of their flagship products all the time. As these new products replace their predecessors, they also obsolete many of their parts. The pace of these generational shifts is accelerating, too. Apple rolls out a new generation of the iPhone every year, and automakers replace vehicle models with extensive redesigns every half-decade or so.
But why does market demand decrease, and why has it been triggering the rising rates of part obsolescence the industry has experienced over the past decade? One of the most important variables to consider here is the technological advancements being made by OEMs.
The quickening of these cycles means that demand for specific components can plummet swiftly, forcing manufacturers to initiate phase-outs and start the clock toward discontinuance. Put simply, components can only survive in the marketplace as long as the products they’re used for continue to be sold. And as those products’ window of mass production and high-volume sales compresses, the specter of obsolescence risk inevitably increases.
Driver #2: Low-Cost Competitors
Once a successful, widely used component is being sold for long enough, competitors often emerge, introducing cross-references to the market and selling them at lower prices. This recurring market dynamic can also negatively affect demand, ultimately driving part obsolescence.
Rival manufacturers may also look to wrest away market share of a component reaching high sales volumes. Competitors with a lower cost of production may enter the market, or domestic competitors may shift production facilities to less expensive locations that let them lower their manufacturing costs.
Driver #3: Government Regulations
While not necessarily as consistently influential or potent as fluctuations in market demand, government regulations also pose a significant obsolescence risk. Trade restrictions can impact supply chain relationships and cut off component manufacturers from their customers. Environmental directives, meanwhile, may impose new material restrictions that effectively render hundreds or even thousands of parts obsolete.
As outlined by Electronics Sourcing, when the European Union’s Restriction of Hazardous Substances Directive (RoHS) entered into force in 2006 and restricted use of materials like lead, mercury, and cadmium in electronic components, it spurred a surge in part obsolescence. Expansions to the EU’s Registration, Evaluation, Authorisation, and Restriction of Chemicals (REACH) during the 2010s led to similar EOL spikes. As governments’ increasing focus on ESG and sustainability give rise to more sweeping, onerous environmental regulations, this may transform into an even more prevalent cause of component obsolescence.
Raw Material Shortages and Other Supply Chain Issues
Unlike the accelerating timeframes between product generations or the proliferation of environmental policies, issues stemming from the supply chain have been complicating electronic manufacturing for decades. Extended shortages of critical raw materials, in particular, can eventually compel manufacturers to shutter specific components. If a company can’t consistently source a material essential to a part, it may decrease production or suspend it altogether, leading to a loss of customers and market share. Unless the shortage and the cascade effect it set off can be rapidly reversed or otherwise ameliorated, obsolescence may ultimately be the most efficient, least complicated operational path.
Obsolescence Risk in 2024 and Beyond
The obsolescence crisis seen during the pandemic era sowed chaos in electronics supply chains, forcing both original part manufacturers and their OEM customers to repeatedly make significant adjustments to their sourcing and manufacturing practices. Fortunately, the unprecedented spikes seen during the pandemic era have gradually tapered off. But while the number of EOL notices are returning to pre-COVID figures, that doesn’t mean that the underlying dynamics that drove the historic obsolescence wave are completely behind us.
During the lockdowns and remote work and learning that characterized so much of the COVID-19 years, semiconductor and electronic component manufacturers faced a sudden increase in demand. Suffice it to say, the industry did not have the capacity to match the surging orders from OEMs and other customers. The global chip shortage that ensued served as a powerful catalyst for transformative growth in the field, compelling companies to expand their manufacturing capacities, break ground on new facilities, and ramp up production on their most in-demand components. But operational growth of this magnitude can be extremely expensive. To trim overhead costs and prepare for new production lines, companies often phase out older, less profitable components. In other words, large shifts in production from major tech sectors not only put new demands on semiconductor manufacturing, they also often lead to striking upticks in part obsolescence.
Over the remainder of the decade, industries like aerospace and defense, medical technology, and especially automotive and its burgeoning EV market are going to drive enormous demand for semiconductors and other electronic components. And as the industry moves into these impending periods of accelerated growth, there’s a very strong likelihood that part obsolescence is going to start climbing again, too. So while there’s been a welcome period of respite from the upheaval of the early 2020s—when manufacturers broke into a dead sprint to ramp up their capacity—looming developments in key industries means that another period of heightened obsolescence risk may be just around the corner.
So while there’s been a welcome period of respite from the upheaval of the early 2020s—when manufacturers broke into a dead sprint to ramp up their capacity—looming developments in key industries means that another period of heightened obsolescence risk may be just around the corner.
