IEC Electronics Corp (NYSEAMERICAN:IEC) CEO Jeff Schlarbaum says Taiwanese electronic component manufacturer Yageo Corporation’s acquisition of US rival Kemet Corporation (NASDAQ:KEM) may pose a national security risk and other problems.
Under the deal announced Tuesday, Yageo will buy Kemet – one of the world’s largest makers of multilayer ceramic capacitors – for $1.8 billion. The acquisition will allow Yageo to expand it global footprint in North America, Europe and Asia.
However, Schlarbaum on Wednesday said problems can arise when suppliers merge. There is a risk of product consolidation when there is potential “redundancy” within their portfolio and a rationalization of manufacturing, he said.
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Highly engineered products often require very specific components on their Bill of Material that can not always easily be exchanged with “similar” type products, including multilayer ceramic capacitors.
He said the consolidation of the supply chain could create parts to be given an end of life notification – meaning that at a future date they will no longer be manufactured after a certain date, ultimately designating the part obsolete.
This causes manufacturers to begin to either find an equivalent part and undergo an exhaustive qualification process to ensure it works exactly like the previous one or identify alternate methods of procuring the part.
Lastly, Schlarbaum said there is also a risk of counterfeit parts entering the marketplace because a scarcity of supply is created by the obsolescence of specific components.
“The electronic component supply chain has been challenging for the past couple of years due to capacity constraints within the marketplace,” Schlarbaum said in a statement.
“The further consolidation of global suppliers may pose a risk to certain programs, some with National Security implications, if specific components become targeted for obsolescence due to manufacturing rationalization.“
Minimizing supply chain risks
Schlarbaum noted that while the company can’t prevent obsolescence within the industry, IEC offers a wide range of services to minimize supply chain risks.
“From component life cycle health analysis, advisory and product redesign services to innovative material acquisition strategies to reduce the risk of unplanned reschedules and cancellations, as well as counterfeit component testing to ensure high risk, short supply parts are authentic," he said.
Founded in 1966, IEC, together with its subsidiaries provides electronic manufacturing services in the United States. The New York company serves the defense, medical, industrial, and aerospace sectors.
ICE’s stock recently traded up slightly to $7.14 a share in New York.
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