Dr. Bill Bradford, President of Flip Electronics, joins us in this Innovation Destination - Executives Perspectives episode to discuss the state of the semiconductor and electronic component industry. From obsolescence solutions to component demand and growth factors, domestic chip manufacturing and more, Dr. Bradford shares his insight and expertise on what stakeholders in the market must be prepared for come 2025.
This interview has been edited and formatted for clarity.
Tyler Fussner, Managing Editor, Supply Chain Connect
Hey, Bill, welcome back!
Dr. Bill Bradford, President, Flip Electronics
Thanks. Great to be back.
Fussner
If you could please introduce yourself to our audience.
Dr. Bradford 0:25
Yeah, I'm Bill Bradford. I'm the President of Flip Electronics, which is a specialty distributor focusing on obsolescence in the electronics market.
Fussner 0:32
Bill, I'm excited for our conversation today. I wanted to ask you, from your perspective as a distributor, how has the role of distributor transformed as of late? Is there anything new or different in 2024?
Dr. Bradford 0:47
Good question. I think we continue to fight a lot of the same battles that have challenged the supply chain over the last several decades in the semiconductor world. We always challenge ourselves on, “Why haven't we learned when we're going through another cycle?” But there are dynamics of the semiconductor supply chain that are unique that always cause these cycles.
Part of it has to do with the manufacturing lead time of products; it is pretty long compared to customer order visibility. And so, in good markets, when I say good markets, it is when product starts to become constrained, customers have to put lead times out there beyond their field of visibility, and then when things weaken just a little bit, all of a sudden that whip in the in the supply chain gets built out and we have excess. We're constantly in this pattern.
This event that happened post-COVID with the 2022 oversupply into the marketplace has caused an inventory overhang that we're continuing to battle through and probably will be battling through a good portion of this year. But that's not really new. It's the same scene over again that we've experienced over the past several decades of the semiconductor industry.
Fussner 2:01
As your customers are navigating these cycles, are you hearing anything new from them today? What are they challenged with? Are they coming to you with different expectations or demands today?
Dr. Bradford 2:12
I think particularly in our sector, which is serving the obsolescence world, obsolescence has always been an issue, but I think it's an issue that continues to grow and challenge the industry in a greater and greater way. And it's driven by the fact that Moore's Law is causing, or driving, performance upgrades on semiconductors at such a rapid pace to fuel things like AI and the new cell phones and Internet of Things. A good portion of electronics and semiconductor consumption is in systems that have a much longer lifespan. Industrial controls and medical equipment and aerospace and defense systems. And so, they're really challenged with keeping a product in production for five, 10, sometimes 20 or 30 years. And yet these Moore's Law driven semiconductor cycles are constantly causing parts to be obsoleted while there's still a long term, long tail demand.
This problem just continues to worsen, because we track the rate of end-of-life notices; those have been increasing year on year. It leads to a lot of other issues as well. We see a strong correlation between products that have been obsoleted and counterfeit reported occurrences. It makes sense, right? When parts are obsolete, they obviously become hard to get because they're no longer being made. So, customers, as they get desperate, turn to the gray market for product and the gray market is rife with counterfeit issues. It's a multibillion-dollar challenge for the industry, these counterfeit parts that are out there. Obsolescence just has a host of issues. It's very expensive for customers to redesign when they're, for example, a medical equipment company. It's not just a two-to-three-year redesign, but it might be a three-to-five-year certification and qualification and medical approval, FDA approval. It's a significant issue that keeps getting more and more challenging to a variety of industries that aren't on that front end riding the Moore's Law wave.
Fussner 4:10
Recently, Flip has gone through an acquisition that has expanded your services to help customers that are dealing with these obsolescence issues. Can you expand on that and tell us what this acquisition has done for your company?
Dr. Bradford 4:22
Absolutely. A little over a year ago, we acquired a company called Resurgent Semiconductor, and that's now a wholly owned subsidiary of Flip called Resurgent Manufacturing Services. And what Resurgent does is extend the life of a semiconductor device. We partner with our authorized suppliers and license the manufacturing technology on a given part that has gone end-of-life and we continue to manufacture that, taking over the foundry arrangement and or buy wafers and store those if the foundry is being decommissioned, and that is often what causes an end-of-life event. So, we either store the wafers or continue to buy the wafers. We take over the relationships with the assembly and test house and continue to provide Flip-branded 100% equivalent products using all the same manufacturing flows, so that customers can have a long-term source of supply.
Historically, Flip’s value proposition in the obsolescence world was that we might have the last remaining 10,000 pieces after a last-time-buy event, and we can save a customer for a few months. But what happens if those 10,000 pieces only support four months of production? Then we're done; we help them a little bit, but we haven't given them a long-term solution. Now with Resurgent, we can continue to manufacture parts for years and even decades. That acquisition has enabled some pretty big engagements with suppliers, most notably, early this year, we announced the acquisition of the ICN8 product line, which is an LDMOS power transistor RF product from Amplion. This serves broadcast and telecom customers that need this product family for literally decades. And so, this is a perfect case of how this acquisition of Resurgent is allowing us now to take on product lines or individual products from suppliers that allow us to support customers that need a very long-term level of support.
Fussner 6:20
And Bill, something that you had mentioned with the gray market. Sometimes customers are looking for different places, or looking in different places, to find their solutions. How are you helping to educate the customers that you are partnering with and people that you work with on how to navigate going through obsolescence?
Dr. Bradford 6:38
Great question. We spend a lot of time on this, obviously, on the whole obsolescence issue. We did a study a few years back that correlated obsolescence with counterfeit occurrences, reported counterfeit occurrences. Recently, we've done quite a bit with our Vice President of Quality, Gary Beckstedt, who has both done a podcast as well as an e-book, pretty extensive and pretty in-depth, around counterfeit avoidance. I certainly recommend the listeners check that out. It's a great resource and getting a lot of hits out there.
Fussner 7:12
It's certainly a hot topic and it's something that is, unfortunately, all too familiar with people having to navigate. And so, the more resources available, the better.
Circling back to something you touched on was the boom of AI, these newer technologies, that are coming up in changing demand levels. On the internal aspect of Flip, are you implementing AI? Are you implementing any newer advanced technologies? And how has that helped shift operations for you?
Dr. Bradford 7:40
Yeah, absolutely. We are exploring and launching a few different AI-driven initiatives right now, both in terms of how we handle and prioritize incoming leads and inquiries to the company, how we analyze pricing trends, and even established pricing. We use Copilot among our executive team to drive internal efficiencies around transcribing of Teams meetings and taking action items. We're constantly trying to learn more about how AI can enable the business, fully realizing that if we don't, our competitors will, and probably already are. So, we're trying to stay in front of that and look for multiple ways to incorporate that into our business processes.
Fussner 8:27
It has to be an exciting time, right? Anytime you get to incorporate new practices or new technologies, it's kind of like going back to that kid-in-a-sandbox-type of situation where you just get to play with things.
Dr. Bradford 8:38
Absolutely. But it's just crazy. This accelerated rate of change of technology right now, how fast… I mean, we thought (getting into this industry a long time ago for me) that the pace of advancement was happening very quickly, but now, it is that asymptotic continual acceleration of all these technologies. Particularly on the AI front, seeing the advancements, it's overwhelming to think about and overwhelming to try to stay abreast of.
Fussner 9:06
Bill, outside of AI, is Flip developing or offering any new capabilities for the customers to help them with their projects?
Dr. Bradford 9:14
Yes. Actually, this is very timely, because a significant effort of the company has been to create an ecommerce engine associated with a new Flip website. And this is going to be going live very, very soon. It's been a year and a half project in the making, and we're very excited about the capabilities that this is going to give customers to shop, fill a cart, see what we have, get pricing and transact online in a very efficient manner.
Fussner 9:40
That sounds like an exciting development.
Dr. Bradford 9:42
Yeah, we can't wait.
Fussner 9:44
Bill, we said earlier on in our conversation, how cyclical in nature this market can be, and this industry can be. Part of that is also the, it seems all too often, occurrences of supply chain disruptions.
Recently we've had conflict in the Red Sea or in the Panama Canal, or the collapse of the Baltimore bridge, even earthquakes and Taiwan. Have any of these recent disruptions impacted Flip or, more in general, how does your company anticipate and then navigate through any supply chain disruptions?
Dr. Bradford 10:12
It's a great question. Flip, one of our big value ads, is trying to help customers with their pain points and weather disruptions. We're not a big broad line distributor that does extended supply chain services, high volume. What we do is help customers get bailed out when they have a problem. And whether that's an obsolete part, it might be parts that are in shortage because of a supply chain challenge, that we might have a product on our shelves that we can get retested or use in a customer's application. Frequently, when there are constraints and supply chain disruptions, a customer may decide that while they can't get the part they need, they can go back to a previous generation part to be able to ship product. And we might have that in our extensive end-of-life inventory. Really, that's the role Flip plays; when the supplier or the main line authorized distributor does not have the product that the customer needs, we really encourage the customer base to come to us for an authorized source of unique inventory before going to the gray market where, again, you're just setting yourself up for some real challenges.
Fussner 11:17
Do you have any advice that you could offer to your customers? I mean, if COVID wasn't the big eye opener, certainly some of these recent disruptions may have been to understand that disruptions happen. Do you have any advice that you can offer to them on how they can better prepare for these disruptions or maybe some solutions that they should be on the lookout for?
Dr. Bradford 11:37
You always want to try to build redundancy into your supply chain and have alternative sources of supply where possible. I'd say the other way is giving as much transparency to their supply chain partners as possible. You can get lulled in as a customer; you can get lulled in in this market where product is readily available and there's a lot of inventory in the channel. As we've seen, historically, through past cycles, that can change pretty rapidly. So, making sure even in a short lead time environment, you have plenty of backlog coverage in place and are forecasting your demand to whatever supplier you may have because it can change rapidly, and those are the customers are going to get caught.
Fussner 12:16
Creating that transparency comes with communication. You have to talk to your supply partners, and even if it's a difficult conversation you have to have it and be prepared to be able to pivot and navigate.
Dr. Bradford 12:26
Absolutely.
Fussner 12:27
Another disruption, or more so a setback, is recently we've seen some setbacks in the construction of new semiconductor fabrication facilities here in the U.S. What does this mean for Flip or for the domestic semiconductor market as a whole?
Dr. Bradford 12:44
Obviously, the CHIPS Act is meant to try to bring a lot more of that advanced semiconductor manufacturing here in the States where we can control it. From a national security perspective, it's imperative. So, the delays are concerning. But I think it's still a great thing that there's so much activity and so much momentum that is happening in terms of new state of the art fabs that are coming to the U.S.
For Flip, specifically, because we tend to play at the tail-end, these fabs aren't directly affecting us. We're playing in the stuff that is built in the older fabs, most typically. But therein lies another challenge. With the CHIPS Act, as important as it is for the U.S. to be a leader in these advanced technologies, if companies—and aerospace and defense is a great example of this—if those companies can't get the legacy products that they need to build an advanced weaponry system that was actually designed seven or eight years ago (even if it's state of the art, a lot of it's designed 20 or 30 years ago), if they can't get that product, that's just as critical as not being able to source the most advanced products here in the U.S. So, that's where we are paying very close attention because the CHIPS Act doesn't fully comprehend, and I think that's one of the things the U.S. is wrestling with, is that gap of the legacy situation and the continuity of supply and the whole issue of how obsolescence is going to affect these companies.
Fussner 14:00
The support with the CHIPS Act; there may be setbacks now, but like you said, it's happening. This is happening. We are getting these facilities up and running in the U.S., eventually. And hopefully, it's a benefit, but there's more to consider than just getting the newest fabrication facilities up and running.
Dr. Bradford 14:18
Absolutely. And we're going to be a trillion-dollar industry by the end of the decade, early in the next decade. And it is absolutely critical that the U.S. has a key role in manufacturing technology, particularly with all the geopolitical tensions going on right now.
Fussner 14:34
Well, you mentioned a little bit of a forward thinking sentiment there. I'm going to ask you to stay in that state of mind. Do you see any verticals or industries that are poised for growth over the next six to 12 months?
Dr. Bradford 14:45
AI might creep up a little. Certainly, it isn't a coincidence that NVIDIA just announced their most recent earnings and once again blew away the numbers, tripling from a year ago and going through it I think I saw a 10 to 1 stock split now. AI is absolutely on fire and driving the majority of the growth and I think is going to continue to drive a majority of the growth, whether it's the processors or the related circuitry around that to support the huge boom in AI. This is one of the most transformative moments in technology, certainly in the semiconductor sector, that we've seen in many years. And I think that's not a little flash in the pan, I think this is going to be a big contributor over the coming years.
Electric vehicles and autonomous vehicles are also driving significant increases. Even internal combustion engines. The chip count is increasing dramatically. But you changed it over to an EV car and it's exponentially increased in terms of the driving of the chip content per vehicle. Those are two examples of specific industries that are really driving the market over the near term.
The counter side to that: I think telecom infrastructure got overbuilt and there's going to be a few years before we really get into that next phase of buildout there. So, I don't see that contributing significantly. Aerospace and defense is obviously a critical sector now, and we're seeing that as pretty steady and positive. But chips are so ubiquitous in almost every industry. There might be some cycles and some ups and downs, but it's all going to contribute toward this trillion-dollar market at the end of the decade.
Fussner 16:15
And Bill, sticking with this forward-facing line of questioning for you: What does the future look like? What do the stakeholders of the electronics market need to be prepared for come 2025?
Dr. Bradford 16:31
I think we're going to see a big boom year 2025. It's kind of discouraging that we're now saying 2025, whereas a year ago we were saying 2024, but we know it's not “if” it is “when.” This inventory overhang has taken a little bit longer, but I think we have to strap on the seatbelts for 2025, because we are going to be in high demand, chasing parts again, as this inventory gets absorbed.
Obviously, there's a lot of macroeconomics that are going to drive to what extent that happens, but I think we're clearly, as we delve out of all this inventory that was pull forward demand from 2023 and even 2024 and pulled forward into 2022, as that gets absorbed, we're definitely going to see some whiplash. Buckle up for 2025.
