Final Report. 26 January Prepared for: Prepared by:

Transcription

1 Assessing the Economic Impacts of the International Standard for the Exchange of Product Model Data (STEP) on the U.S. Electronics Manufacturing Industry Final Report 26 January 2015 Prepared for: U.S. Department of Commerce National Institute of Standards and Technology Engineering Laboratory Prepared by: Robert D. Niehaus, Inc.

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3 Assessing the Economic Impacts of the International Standard for the Exchange of Product Model Data (STEP) on the U.S. Electronics Manufacturing Industry Final Report Prepared for National Institute of Standards and Technology 100 Bureau Drive Gaithersburg, MD Prepared by Robert D. Niehaus, Inc. 140 East Carrillo Street Santa Barbara, CA Contract No. SB CN January 2015

4 DISCLAIMER Any mention of a product, company, or service in this document is not intended to imply recommendation or endorsement by the National Institute of Standards and Technology (NIST). This document is richer from drawing upon survey responses and from other literary works. The reader should assume all references and examples are to enhance the material presented, and to put in context the resulting benefits analysis and NIST s role in standardizing product data exchange. Opinions and estimates not explicitly referenced in the text are the result of confidential interviews and/or surveys of industry experts and CAx software vendors and do not necessarily reflect the views of NIST.

5 TABLE OF CONTENTS TABLE OF CONTENTS... i LIST OF TABLES... iii LIST OF FIGURES... iii ACRONYMS... iv EXECUTIVE SUMMARY... ES-1 1. INTRODUCTION Overview of the Report Methodology of the Study STEP FOR ELECTRONICS MANUFACTURING STEP Development STEP s Use by Industry Implementation Other Industry Standards Approaches to Product Data Exchange Standardization Using One Software Tool Direct Point-to-Point Database Translation Re-Entry of Design Data Using Neutral File Formats Costs of Data Exchange Bridging the MCAD-ECAD Gap Metrics for Assessing the Benefits and Costs of STEP Barriers to STEP s Development and Adoption by Industry Lack of Industry Awareness Lack of Implementation by Vendors Nature of Electronics Lifecycle Other Standards The Future of STEP in Electronics Manufacturing ELECTRONICS MANUFACTURING OVERVIEW Industry Landscape and Economic Trends Computer and Peripheral Equipment Manufacturing Communication and Navigation Equipment Manufacturing Audio and Visual Equipment Manufacturing Semiconductors and Other Electrical Component Manufacturing Electronics Manufacturing Process Supply Chain Intellectual Property i

6 Design and Development END USER AND SOFTWARE DEVELOPER SURVEYS COST-ACCOUNTING BENEFITS ANALYSIS Potential Avoidance Costs Investment in Redundant CAx Systems Productivity Loss on Redundant CAx Systems Investment in Redundant CAx Training Redundant CAX Systems IT Staff Potential Mitigation Costs and Delay Costs Adoption Rates ECONOMIC SURPLUS BENEFITS ANALYSIS Computing the Proportionate Change in Productivity Computing the Proportionate Change in Cost Computing the Supply Shift Computing Total Economic Surplus, Consumer Surplus and Producer Surplus SOCIAL COSTS OF STEP Public Expenditures on STEP Software Developers Expenditures End User Expenditures Total Expenditures SUMMARY Cost-Accounting Method Economic Surplus Method Net Economic Returns of NIST Contributions CONCLUSIONS AND RECOMMENDATIONS REFERENCES ii

7 LIST OF TABLES Table 3-1. Electronics Manufacturing Industries Included in this Study Table 3-2. Economic Trends in U.S. Computer and Peripheral Table 3-3. Economic Trends in U.S. Communication and Navigational Table 3-4. Economic Trends in U.S. Audio and Visual Equipment Manufacturing (2013$) Table 3-5. Economic Trends in U.S. Semiconductor Table 5-1. Coverage Ratios Table 5-2. Summary of Potential Avoidance Benefits, in millions (2013$) Table 5-3. Potential Redundant CAx System Benefits, (2013$) Table 5-4. Potential Benefits from Avoided Productivity Loss Table 5-5. Potential Benefits on Redundant CAx Training, (2013$) Table 5-6. Potential Redundant CAx IT Support Staff Benefits, (2013$) Table 6-1. Average Productivity, Y, (2013$) Table 6-2. Productivity Gain from STEP, Y, (2013$) Table 6-3. Proportional Production Shift, j Table 6-4. Net Proportional Shift in the Supply Curve, k Table 6-5. Total Annual Economic Surplus, millions (2013$) Table 6-6. Consumer and Producer Surplus Gains by Industry, millions (2013$) Table 7-1. Total Public Expenditures, (2013$) Table 7-2. Software Developer Expenditures, (2013$) Table 7-3. Total Social Costs, (2013$) Table 8-1. STEP Benefits and Social Costs, Economic Surplus Methodology LIST OF FIGURES Figure 1-1. Flows of Resources, Benefits and Costs Figure 2-1. AP 203/AP 210 Relationship Figure 2-2. AP 233/AP 210 Relationship Figure 2-3. AP 210 Domain Figure 2-4. AP Components Figure 2-5: Timeframe of ECAD/MCAD Collaboration Figure 3-1. Global Electronics Manufacturing Supply Chain Figure 3-2. Integrated Product Lifecycle of Electromechanical Products Figure 5-1. STEP Adoption Rates in the Electronics Manufacturing Industries, Figure 6-1. Illustration of Economic Surplus Methodology iii

8 ACRONYMS 2D 3D AP BREP CAD CAE CAM CAx CMM CSI DEX DMSC DMU DoD DXF ECAD ECO EDMD ERP GD&T IGES ISO JT LEAPS Two-dimensional Three-dimensional Application Protocol Boundary Representation Computer-Aided Design Computer-Aided Engineering Computer-Aided Manufacturing Computer-Aided Processes Coordinate Measuring Machine Customer/Supplier Interoperability Data Exchange Specification Dimensional Metrology Standards Consortium Digital Mock-Up Department of Defense Drawing exchange Format Electronic Computer-Aided Design Engineering Change Order Electrical Design Mechanical Design Enterprise Resource Planning Geometric Dimensions and Tolerances Initial Graphics Exchange Specification International Organization for Standardization Jupiter Tessellation Leading Edge Architecture for Prototyping Systems LOTAR MBD MBE MBM MBS MCAD NARA OEM PAS PCA PCB PDF PDM PLCS PLM PMI PRC RDL SB SDK SME STEP TDP TTR U3D UML XML Long-Term Archiving and Retrieval Model-Based Definition Model-Based Enterprise/Engineering Model-Based Manufacturing Model-Based Sustainment Mechanical Computer-Aided Design National Archives and Records Administration Original Equipment Manufacturer Publically Available Specification Printed Circuit Assembly Printed Circuit Board Portable Document Format Product Data Management Product Life Cycle Support Product Life Cycle Management Product Manufacturing Information Project Reviewer Compressed Reference Data Libraries Service Bulletin Software Development Kit Small or Medium Enterprise Standard for the Exchange of Product Model Data Technical Data Package Test and Test Repair Universal 3D Unified Modeling Language Extensible Markup Language iv

9 EXECUTIVE SUMMARY This report documents an economic impact study sponsored by the National Institute of Standards and Technology (NIST). The study assesses how and to what extent NIST s support of the development of the International Standard for the Exchange of Product Model Data (STEP) benefited the U.S. electronics manufacturing sector between 2002 and For purposes of this report, the scope of electronics manufacturing is limited to the computer and peripheral (CP); communication and navigation (CN); audio and visual (AV); and semiconductor manufacturing industries. This report supplements a more comprehensive NIST study on STEP s impacts on the U.S. transportation manufacturing industry over the same period. 1 Readers are encouraged to review the companion study (see footnote) for background on product data exchange and NIST s role in STEP s development. Scoping Interviews This study establishes the current development and implementation of STEP in the electronics manufacturing industry based on a literature review and in-person/telephone interviews conducted between November 2012 and July 2014 with representatives of industry original equipment manufacturers (OEMs), computer-aided design and engineering (CAx) software developers, NIST, and other government agencies. The results of these interviews are summarized in Section 3: STEP Electronics Manufacturing. These interviews were also used to help develop the questions asked in the end user and software developer surveys that were used to quantify STEP s influence in the electronics manufacturing sector. End User and Software Developer Surveys This study incorporates two surveys of STEP development and use an End User Survey and a Software Developer Survey. The surveys were conducted online from Fall 2013 through Spring 2014, with data drawn from a universe of approximately 1,000 professionals in the electronics manufacturing or CAx software industries who would be knowledgeable about electronics design and manufacturing standards and their implementation. Key findings specific to data used in the analyses, as available, are presented in Section 5: Cost- Accounting Benefits Analysis; Section 6: Economic Surplus Benefits Analysis; and Section 7: Social Costs of STEP. Response rates for both the End User and Software Developer surveys were very low, approximately 1 percent, and few of those who did respond answered all of the questions necessary to compute economic benefits using the cost-accounting methodology. Based on scoping interviews with industry professionals, it appears this low response rate can be principally attributed to three inter-dependent factors: 1 The main study which covers U.S. transportation equipment manufacturing is: Reassessing the Economic Impacts of the International Standard for the Exchange of Product Model Data (STEP) on the U.S. Transportation Equipment Manufacturing Industry. The purpose of the study was to update the benefits of STEP projected in NIST Planning Report 02-5: Economic Impact Assessment of the International Standard for the Exchange of Product Model Data (STEP) in Transportation Equipment Industries, published in ES-1

10 1. STEP is relatively unknown in the electronics design and manufacturing community, which may have made respondents less likely to complete the survey. 2. The End-User survey required the respondent to provide detailed information about costs and productivity that few companies readily track, thus the respondent would need to invest significant resources to properly estimate the answers. These questions were nonetheless necessary to replicate the cost-accounting method employed in NIST Planning Report Accompanying the rapid pace of product design and development are heightened concerns about protection of proprietary design information. Manufacturers and design professionals in the electronics industry are reluctant to share sensitive information about their data exchange process, costs, and productivity despite assurances that the data would be confidential. One of the key drivers for estimating the economic impacts of STEP is the adoption rate the share of time users spend using STEP files compared to other formats. Of the 12 End Users who did complete the survey, the range in average adoption rates was 0-5 percent, depending on the industry. For comparison, average adoption rates in transportation equipment manufacturing industry ranged between 14 and 25 percent. Despite its low adoption, STEP continues to play a useful role as a proof-of-concept for vendor neutral MCAD-ECAD exchange. More importantly, STEP AP 210 and AP 214 laid the groundwork for a new XML-based EDMD (Electrical Data Mechanical Data) data model developed by industry group ProSTEP ivip called IDX (Incremental Data exchange). Additionally, while most vendors had never heard of or used AP 210, this is not to say that STEP has not been implemented by the electronics manufacturing industry. Rather, this industry mostly makes use of the mechanical-oriented AP 203 and AP 214 for interference checking between the electronic component and its physical enclosure. Consequently the economic benefit measure reported here is mostly due to these protocols. The reported benefit also likely under-estimates the actual total benefit attributable to STEP because it excludes those benefits resulting from STEP s influence on other standards, such as EDMD. Study Methodology This study attempted to use two alternative approaches to estimate the social benefits of STEP and NIST s contribution to its development. The first is a cost-accounting method, a bottom-up approach employed by the companion study (Reassessing the Economic Impacts of the International Standard for the Exchange of Product Model Data (STEP) on the U.S. Transportation Equipment Manufacturing Industry) for the transportation manufacturing industry that tabulates firm-level cost savings attributable to STEP and extrapolates to the industry as a whole. However, due to the lack of data from survey respondents, as well as the generally low adoption rates of STEP in the electronics manufacturing sector, this study is not able to compute a comprehensive measure of the cost savings from this methodology. Although a partial measure of avoidance costs is reported, savings from reduction in mitigation or delay costs could not be estimated. The second approach is an economic surplus method, a top-down approach that focuses on industry-level data and separates the social gains of STEP to producers and consumers. Benefits from STEP can be estimated using the economic surplus method because it relies less heavily on survey data and more on publicly available national level data. ES-2

11 Economic Surplus Results Using the economic surplus method, the present value of the social benefits of STEP during the period is $29.0 million. Given a present value of costs of $19.9 million, the net present value of the benefits and costs is $9.1 million. Note that this benefit is the result of a partial equilibrium analysis and omits the effects of changes in other product and input markets. That is, the effects are treated as operating independently from other sectors of the economy. ES-3

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13 1. INTRODUCTION This report serves as a companion to the study of the economic impacts of STEP on the transportation manufacturing industry - Reassessing the Economic Impacts of the International Standard for the Exchange of Product Model Data (STEP) on the U.S. Transportation Equipment Manufacturing Industry - sponsored by the National Institute of Standards and Technology (NIST, 2014). The focus of this report is on the economic impact of STEP on the U.S. electronics manufacturing industry over the same period. Detailed discussions of product data exchange and the types of interoperability problems experienced by manufacturers are presented in the analysis of the transportation manufacturing industry report referenced above and are not repeated here Overview of the Report This report is divided into 10 sections. Section 1 introduces the methodology used in analysis of the economic impacts of STEP in the electronics manufacturing sector. Section 2 reviews the STEP standard for electronics manufacturing and current trends in its development and implementation by industry. Section 3 describes the market structure and recent economic trends in the electronics industries included in this report. Section 4 describes the two surveys accomplished for this assessment: (a) a survey of CAx data end-users (OEMs and suppliers) and (b) a survey of CAx software developers. Section 5 details the assumptions and computations required to assess the benefits attributable to STEP using the cost-accounting methodology. Section 6 follows with a description of the benefits to STEP using the economic surplus methodology. Section 7 then proceeds with a discussion of the social costs of STEP, which factors in costs incurred by industry, software developers, and public agencies. These costs are then compared to the benefit estimates derived using both methodologies to estimate the net benefits of STEP. Section 8 summarizes the results of the two approaches used to calculate the net economic impact of STEP on the electronics manufacturing industry. Section 9 summarizes the conclusions of the analysis and provides recommendations for future actions. Section 10 provides the references used in this study Methodology of the Study This assessment attempted to employ two alternative approaches to estimating the economic benefits of STEP so as to ensure that all potential benefits are included in the analysis. Neither approach is necessarily superior to the other. The methodologies differ sufficiently from each other that together they provide greater confidence in the resulting estimates. The first approach, the cost-accounting method, matches the approach taken in NIST s 2002 report on the transportation equipment manufacturing sector (Gallaher et al., 2002). This is a bottom-up approach extrapolated from firm-level data, whereby survey responses are used to compute various types of cost-savings such as from reductions in avoidance, mitigation, and delay costs. When aggregated across industries, these total cost savings represent the social gains from STEP. A full description of the methodology and partial results are presented in Section 5 of this report. Low survey responses, however, precluded the complete application of this methodology. 1-1

14 The second approach, the economic surplus method, is based on aggregated industry data and includes the benefits of technological innovation that are passed on to the consumer. It is, by contrast, a top-down approach, whereby aggregate employment and output measures are used to quantify the gains from the technological improvements resulting from STEP. This is the most popular approach in assessing the impact of research and technological developments (Debass, 2000). A full description of the methodology and results are presented in Section 6 of this report. Both methodologies measure the flow of benefits from STEP and compare this total to the flow of costs incurred which include research and development costs from public and private entities. Figure 1-1 shows a timeline for the flows of costs and benefits from a hypothetical technological innovation. Benefits may accrue slowly at first, but tend to increase year over year as more and more firms adopt the technology. Benefits plateau as the technology matures and then decline until the end of the technology s lifecycle. Figure 1-1. Flows of Resources, Benefits and Costs Source: Alston, Norton, and Pardey, There are several means of measuring the profitability of STEP as an investment: the Net Present Value (NPV), the Internal Rate of Return (IRR), and the Benefit to Cost Ratio (BCR). The Net Present Value captures the difference between the discounted flow of benefits and costs. The project is deemed profitable if the NPV is greater than zero. The IRR is the rate that equates the present value of benefits to the present value of costs. For a project to be considered profitable, this rate must exceed the current market rate for alternative capital use. The long-run average real rate of return on U.S. capital investment used in this analysis is 7.1 percent (Sun et al., 2011). The BCR ratio measures the ratio of the present value of benefits to the present value of costs. If this ratio exceeds one, the project is deemed profitable (Wander et al., 2004). 1-2

15 2. STEP FOR ELECTRONICS MANUFACTURING The digitization of product model data in the late 20th century led to substantial improvements in manufacturing processes as well as standards for exchanging these data. However, it became clear that the existing standards fell short of the robust, comprehensive information models necessary to represent emerging manufacturing trends and data modeling techniques. The Standard for the Exchange of Product model data, informally known as STEP, was developed to be a neutral, system-independent standard that could fully describe a variety of manufactured products throughout their lifecycles. STEP is structured as a series of modular Application Protocols (APs) that are tailored to different manufacturing processes but still compatible with one another. The bulk of STEP APs are used by the transportation manufacturing industry, but certain APs were designed to be used in electronics manufacturing as well. The following section addresses elements of STEP most relevant to the electronics industry STEP Development STEP has typically focused on the creation of APs to represent discrete manufactured parts (e.g., AP 203, AP 214, AP 219, etc.). There are three electronics-oriented APs: AP 210 Electronic Assembly, Interconnect and Packaging Design; AP 211 Electronics Test Diagnostics and Remanufacture, which is not active; and, AP 212 Electrotechnical Plants (including wire harness), which was published in 2001 but has had little real-world use. STEP s potential use in electronics is thus mostly isolated to AP 210, with certain mechatronic applications for the geometry in AP 203 and AP 214. STEP AP 210 was first released in 2001 through a collaborative effort by NIST, Rockwell Collins, Delphi-Delco Electronic Systems, the Naval Supply Systems Command RAMP Program Office, IBM, and other members of PDES, Inc. (Smith, 2002). Early translators between AP 210 and EDA systems were developed for Mentor Graphics Board Station, Zuken s Visula, and CadSoft s EAGLE software (Wu, 2003). NIST also funded the development of data integration application programming interfaces (APIs) and corresponding documentation that proved critical to vendors writing the translators. Additionally, translators were made available from several EDA vendors (Seth et al., 2007). A second version of AP 210 was released in 2011 to adopt STEP s modular architecture and improve interoperability with other APs. There are additional APs that work in tandem with the electronic APs in the design and manufacturing process. AP 210 is an electromechanical standard, whereas AP 212, AP 233 and AP 239 are system standards (US Product Data Association, 2006). It should also be emphasized that the geometry of the popular AP 203 is actually a subset of AP 210 (see Figure 2-1). Thus, on the MCAD side, AP 210 can support 3D part and assembly data while also supporting PCB data on the EDA side that could potentially supersede formats such as Gerber, ODB++, IDF, and GenCAM (Wu, 2003). 2-1

16 Figure 2-1. AP 203/AP 210 Relationship Source: Stirk, The overlap between AP 233 and AP 210 is shown in Figure 2-2. Figure 2-2. AP 233/AP 210 Relationship Source: Stirk,

17 Wu (2003, p. 4) further offers a concise definition of AP 210: it provides the data structures for exchanging information between application processes during the requirements definition, design, analysis, and manufacturing phases of electromechanical products. AP 210 is generally not used in the manufacturing of electronic components such as integrated circuits it focuses rather on circuit boards and their assemblies as well as electronic packaging (i.e., putting chips in a package). The domain of AP 210 is illustrated in Figure 2-3 below. Figure 2-3. AP 210 Domain Source: Seth et al., The specific components of AP 210 are categorized in Figure 2-4. As Wu (2003, p. 11) explains, it spans from the definition of devices and parts, to that of printed circuit boards (PCBs) and assemblies (PCAs); from the device functionality and part definition, to the assembly functional network design decomposition; from the functional requirements, to the physical implementations; and from analysis models, to manufacturing planning data. Figure 2-4. AP Components Source: Smith,

18 2.2. STEP s Use by Industry The current implementation of STEP in electronics manufacturing was largely determined based on a literature review and interviews with professionals in the field. All of the individuals interviewed during the course of this study had a mechanical and/or electrical engineering or engineering technology background. Their credentials included Master s degrees in mechanical, electrical, and systems engineering, as well as specialized areas such as electro-optics and computer hardware. The current positions most often listed were team leaders in design, but also included product marketing and business development. Each interviewee brought numerous years of expertise to the discussions with many citing up to thirty years in the field. The interviews followed a general script of questions that explored their company s current data interoperability approaches, their use of STEP, its success, costs and benefits, as well as the potential for additional use of the STEP standard in the future. In the case of interviews with software vendors, representatives were asked to assess what they have heard from their broad customer base relative to these same issues. The interviewed companies were evenly split between OEMs and software tool vendors. Software vendors were chosen from a list of the most popular applications in the electronics industry. Their customers include small, medium, and large companies geographically distributed throughout the United States. The following sections summarize the results of these interviews Implementation The purpose and extent of STEP s usage within the organizations surveyed in this study varied widely. Some OEMs used it as a way to communicate with suppliers, exchange data between design and manufacturing, or to archive data due to regulatory compliance directives. As a whole, however, it is clear that STEP s use in electronics manufacturing is limited to special cases or isolated processes, such as interference checking between electronic and mechanical components. When asked why STEP was not used more in electronics manufacturing, many interviewees admitted they were not familiar with STEP, or only knew about its uses for mechanical design. Lack of awareness of STEP s other APs is a significant barrier to industry adoption. Several participants made the point that there may be a need in contemporary technical education curricula to include the discussion of STEP and other neutral formats and their potential role in model-based manufacturing for electromechanical systems. Currently, most design engineers knowledge of these formats is mediated by EDA vendors, who choose how and to what extent their systems can import, export, or edit files in non-native formats, including STEP. Investigations of major EDA vendors implementations of STEP reveal none currently support AP 210 files. Instead, EDA vendors have adopted import/export functionality for the more common mechanical APs namely AP 203 and AP 214 which are widely used in the transportation equipment manufacturing industry. The vendors implemented these APs to represent simple 3D geometry so users can conduct interference checks between the electronic component and the intended enclosure. Vendors have not implemented the enhanced electronicsspecific functions of AP 210, such as pin mapping, PCB bill of materials, or simulation models. 2-4

19 Even OEMs and suppliers who do use STEP are usually unaware of AP 210 and accept vendor s partial implementations of STEP (AP 203/214) as the full extent of STEP s data model. This has led to the perception that STEP is purely a standard for mechanical design. Additionally, even the vendors implementations of AP 203/214 may be incomplete or interpret the model differently, leading to only partial cross-tool interoperability and perpetuating a negative perception of STEP s usefulness. One electronics OEM, for example, said they exchanged STEP files with suppliers at most once a week. However, in many cases, the supplier would also require (or think they needed) a 2D drawing as well. This is due to a lack of trust in the abilities of the current modeling technologies and/or their various STEP implementations to fully capture the information that needs to be sent to the supplier. OEM interviewees who were knowledgeable about STEP shared their hope that the release of AP 242 will address the legitimate lack of functionality and overlap between existing APs, such as AP 214 and AP 203 (which has been used for exchange and archival purposes). They also noticed that some firms are beginning to test the systems engineering aspects of STEP (i.e. AP 233) as a way to address the design needs of modern electromechanical systems. They remain optimistic that AP 210, 233, and 239 may eventually become more mainstream, especially with EDA vendors. However, these APs have been available for many years and most vendors have yet to release STEP translators beyond those for product geometry. Another frequently cited problem with using STEP for electronics manufacturing is the scale of complexity necessary to justify using STEP. A shipbuilding OEM representative who works with both mechanical and electrical systems explained that AP 210 is appropriate for use in projects that are orders of magnitude more complex than stand-alone electronics (e.g., a battleship) and require significant mechanical-electronic integration. He did not believe AP 210 was appropriate for use in the manufacture of a single circuit board. This is consistent with other interviewee opinions that STEP is too heavy for use in the modern consumer electronics lifecycle relative to the prevailing tools and formats. Only one known OEM interviewed for this study uses AP 210 for day-to-day operations, and that OEM does not use it for the exchange of circuit card manufacture or assembly data. It is only used internally with 3D molded interconnect devices. According to this avionics OEM, only AP 210 provides the ability to have traces go over a non-planar surface. This same OEM adapted AP 210 to allow interoperability between EDA layout and circuit card assembly with rule-based analysis tools. Furthermore, their electronics manufacturing models are stored in AP 210 for long-term archival and retrieval (LOTAR), both for internal use and to satisfy U.S. Department of Defense technical data package requirements. However, most OEMs in the electronics manufacturing industry exchange native CAx data internally. External data exchange may take place via STEP or IGES file formats if the supplier requests it, but this is thought to be rare. One firm, for example, said that they do not track their STEP-files exchanges, but characterized the total number of transfers as a handful of files, possibly ten times a year. It should be emphasized that, while aerospace and defense OEMs do not use STEP for electronics manufacturing, it is used extensively on the mechanical side. One aerospace OEM stated that roughly 20 percent of their total CAx file transfers (mechanical, electrical, systems, and software) are performed via STEP. If the focus is purely on the mechanical side, that percentage rises to 70 to 80 percent. STEP s use in the electronics domain is largely isolated to 2-5

20 bridging the ECAD-MCAD environment, such as fitting electronic components in enclosures. This is an increasingly important function in the design process, but falls short of STEP s full potential. No one format is used across the entire lifecycle. However, many interviewees did acknowledge that if STEP AP 210 and select other APs were fully implemented by vendors, it could obviate the need for the several different formats currently required to transfer data between phases of PCB development, including design, analysis, validation, packaging, fabrication, and machining. Under this scenario, there is also potential for STEP to become the de facto industry standard for long-term archiving Other Industry Standards The manufacturing process differs dramatically depending on the physical scale of the product. That is, the process of designing the physical dimensions and tolerances of an engine turbine vastly differs from the logic-based design of a microchip. The electronics manufacturing industry has developed its own set of proprietary and non-proprietary (i.e. open or semi-open) formats for exchanging electronics manufacturing data, such as those necessary to fabricate a printed circuit board or to feed automated assembly and inspection equipment. For example, one avionics OEM interviewed for this study stated that the firm stores files in native EDA format (proprietary), Gerber (open), and PDF files (open) for circuit card assemblies. Industry-wide, Gerber and ODB++ (semi-open) are the most common formats for CAD-to-CAM transfers sent to suppliers for PCB fabrication. The ECAD/EDA market is estimated to be a four billion dollar industry with 80 percent of the revenue coming from a handful of firms (EDAC, 2014). The Electronic Design Automation Consortium is an industry organization promoting interoperability of formats and assisting with the development of ECAD/EDA (Electronic Design Automation) tools. There are also groups that advocate for and develop semi-open/open EDA standards for capturing rich product definitions, including IEEE, IPC, ProSTEP ivip, and the Silicon Integration Initiative (Si2). Most electronics manufacturing companies use some form of digital system to share product model data within and across their enterprise. The form of that digital data, however, varies widely depending on the particular viewpoint and stage of the product s lifecycle. From a design perspective, electronic components tend to be more complex than mechanical ones, and a full model-based definition would have to include information on the component s circuit logic and various thermal and material properties. There is currently no single information model that covers every aspect of an electromechanical product. As it stands, electronics OEMs and suppliers currently exchange data using a blend of proprietary and standard formats throughout the design and manufacturing process Approaches to Product Data Exchange Product development and manufacturing companies share product design data within their organization and externally with partners, suppliers, and customers on a regular basis. It is often the case, however, that the parties sharing data use different use different CAx software to author those data. Thus they face the challenge of translating the product design data from one proprietary database format into another. This problem can be compounded by data inaccuracies, inconsistencies, and omissions during the exchange. 2-6

21 Cross domain (i.e. between electronic and mechanical) data compatibility is another challenge that could be addressed through open standards. The design solutions for the electrical product components are authored in electrical computer-aided design (ECAD) systems, also called Electronic Design Automation (EDA) systems. Some EDA vendors publish mechanical CAD (MCAD) software, but the leading vendors (Cadence, Synopsys, Mentor Graphics, and Zuken) focus almost exclusively on EDA. MCAD systems are used to design mechanical systems, including the enclosures that contain electronics and the interconnecting wire harness. Moving design data between EDA and MCAD systems has been a continuing struggle for many industry sectors as new products are designed with an ever-increasing amount of electronics. Historically there have been four different approaches to interoperability in CAx data exchange: Standardization on one solution and sharing native format files Direct point-to-point database translation Reentry of design data Translation through an intermediate neutral file format (e.g., STEP) Industry experts interviewed for this study employed different approaches or a blend of approaches depending on the particular use case. The following subsections describe each approach in more detail Standardization Using One Software Tool When it is at all feasible companies prefer to have all product development stakeholders use the same CAx solution. Exchanging data among users then becomes a simple exercise of sharing the design s native database. There is no loss of data, nor are there any data inconsistencies, since this approach uses the same data file format and the same application software. Problems may arise, however, when data must be shared outside of a company with development partners or supply chain companies. In this approach, those recipients of the product data must license the same CAx solution at additional cost to them. Some large product companies have chosen this path of standardizing on one commercial CAx format. However, this approach results in added costs in the supply chain to support multiple CAx solutions so one supplier can work with more than one OEM. Those costs impact the total cost of development and may be partially passed on to consumers. In the electronics industry, the one solution approach can cause problems when attempting to exchange electronic data authored in EDA and mechanical data authored in MCAD. In fact, because of the increasing electronics content being designed in virtually all products today, many other industries face this same issue. Each must find a method to exchange data between the different electrical and mechanical applications Direct Point-to-Point Database Translation The second approach to data exchange between divergent solutions is a software translator that converts the data from one format to another. Third-party solution providers have emerged to provide this second approach of direct point-to-point translation services, but there are added costs which are compounded as each EDA tool evolves. The concern typically voiced about this approach to data interoperability is the need for N-squared translators: if there are an N number of EDA systems, then each CAx solution must have a unique translator to N-1 other 2-7

22 solutions, forcing a total of NxN (N-squared) translators. It is generally impractical for manufacturing firms to purchase and maintain several point-to-point translators, especially if one or more CAx system vendors do not fully cooperate Re-Entry of Design Data Data reentry or product data re-authoring has always been viewed as the least favorable solution but remains common practice at many companies if only because of the inadequate implementation of current EDA translators. Re-design and re-entry is prone to human errors in both the sending and receiving EDA formats. In addition, the cost to perform the data entry and the delay to product schedules can have substantial impacts on the overall schedule and product development cost Using Neutral File Formats The fourth option, translation through an intermediate neutral file format, has gained relatively popular acceptance. This approach requires first the definition of a neutral data format in essence a neutral EDA database. Then a data translator for each EDA tool must be implemented to convert the EDA solution s native database to and from the neutral file format. Given the architecture of this approach, only an N number of CAx translators are needed, and more importantly each CAx vendor can make an independent decision to support the neutral format without affecting the implementations of other vendors. STEP is one such standard, but there are at least three other open standards, including APIs/schemas from ProSTEP ivip s EDMD (Electronic Design Mechanical Design) standard for ECAD-MCAD exchange, Silicon Initiative s (Si2) OpenAccess EDA API, and the Association Connecting Electronic Industries IPC-2581 standard for all end-to-end PCB manufacturing. Each of these standards represent an overlapping consortium of major EDA vendors and electronics manufacturing OEMs and are either free or require a one-time purchase from the issuing standards organization Costs of Data Exchange Interviewees and survey respondents all acknowledged the reality of the costs of data exchange that is, they all agreed that there was a cost borne by their company to facilitate successful data exchange. Most respondents explained that companies do not measure their data exchange costs since it is rarely considered to be large relative to the overall cost of product development. Interoperability issues are simply accepted as the cost of doing business. This is generally true in the mechanical domain as well. A 2010 survey of mechanical-oriented OEMs, for example, found that 82 percent of the 269 companies surveyed used three or more different CAD software packages. More than 40 percent had licenses for five or more packages (Prawel, 2011). Based on the End User survey conducted for this study, the typical annual licensing costs for enterprise CAx software currently runs $1,000-$4,000 or more per user. This may not be a significant cost to some firms, but can be prohibitive to small and medium sized enterprises. In mechanical CAD, the software to export/import STEP data is most often bundled within the CAD design product, thus there is extra software license cost for the user to import/export STEP data and exchange it with others. In contrast, not all electrical CAD solutions support the import/export of STEP, though many do have basic translators for AP 203 or AP 214. Some EDA vendors offer these translators as a separately priced plugin, but this cost is negligible relative to the overall cost of the design application. 2-8

23 2.5. Bridging the MCAD-ECAD Gap A common issue raised by industry experts during the course of the interviews was that the mechanical and electrical domains of design and manufacturing are rather segregated. A major improvement would be the capability to exchange mechanical and electrical design information so that they may be combined into single models. In fact, an industry survey found 68 percent of manufacturers cited the separation of mechanical and electrical designs as problematic for product development (Stube, 2009). The ECAD vendor Altium summarizes the problem: As it stands, the existing solutions attempt to bridge the MCAD-ECAD gap through a maze of file formats and applications designed to stitch processes together. What s basically needed, however, from a process point of view, is the ability to design and position correctly-sized objects in both domains so that the overall design fits together as intended. (Altium, 2013) For example, when analyzing designs, it would be useful to be able to look at a model that accurately represents the mechanical structure, including layout and geometry of the electrical parts on the circuit cards in the design. Not only would this be useful for assembly and producibility analysis, it could eventually lead to new approaches to test, troubleshoot and repair of electronic equipment. One navigation equipment manufacturer stated that they were very interested in closing producibility analysis gaps and envisions STEP as being part of the solution. They are currently investigating means of merging ECAD and MCAD models into a single producibility analysis tool that enables comprehensive visualization of electronics at the system level, box level, board level, or tracings between components on a board. One avionics interviewee recounted how, in their current practice, the mechanical design component does not become combined with the electronic design component until the top level assembly. This often results in problems, such as incompatible tolerances, that could have been avoided were the electronic and mechanical systems designed in tandem. Several MCAD and ECAD vendors are trying to address this issue by developing real-time ECAD/MCAD collaboration software. In fact, one of the accepted inputs for some of these software packages is STEP files (containing key information such as PMI and thermal characteristics). These modeling and simulation software packages permit the user to manipulate the imported data and make changes virtually and thereby test the design in a software environment before manufacturing physical prototypes. Virtual tests allow the user to isolate faults and identify their sources, adding substantial value to the process. This same avionics OEM, for example, estimated that 60 percent of their labor costs in product design can be attributed to product testing. The ability to use STEP or another open standard to simplify tests could significantly reduce total testing costs. Figure 2-5 presents a rough timeline for the stages of ECAD/MCAD collaboration. The industry is still working on integrated mechatronics standards for full collaboration between MCAD and ECAD systems. One of the more popular standards among ECAD vendors, EDMD (Electrical Design Mechanical Design), was actually influenced by STEP. Drawing heavily from AP 210 and AP 214, the industry group ProSTEP ivip developed the XML-based (Extensible Markup Language) schema in 2008 through the collaboration of tool vendors and users. It is an open industry standard for exchanging printed circuit board (PCB) designs and modifications, but not the entire design, between MCAD and ECAD systems. Though there are still additional areas for improvement, the EDMD standard permits real-time synchronization of the MCAD- 2-9

24 ECAD systems and interactive clearance checking. This has the potential to reduce both product development costs and time to market. Figure 2-5: Timeframe of ECAD/MCAD Collaboration Source: Stube, Metrics for Assessing the Benefits and Costs of STEP The cost of improving interoperability in data exchange is by no means trivial. There is a cost to buying translators, integrating them with the product life-cycle management (PLM) systems, developing supporting tools, controlling versions, assuring the right expertise, validating methods, etc. Neutral formats like STEP can, in theory, substantially reduce these costs by forming a public bridge between proprietary CAx systems. Based on interviews for this study, metrics for addressing these costs are nearly non-existent. Companies typically do not directly track the effects of using or not using STEP. However, they do track data quality and product quality, and with some amount of manual intervention, they might be able to trace back a quality issue to a corrupted 3D model or ineffective data exchange transaction. Some interviewees also noted that companies may try to measure interoperability costs when they are contemplating (or have already decided) to change software tools or PLM systems. One of the key aspects of standards development and adoption is whether or not the adoption of such standards provides a meaningful and positive impact on the organization which has adopted them. As part of this study, participants were asked to discuss whether the use of the STEP standard has made them more profitable, more competitive, and more innovative. Almost all responses centered on the fact that the use of STEP was small compared to all other aspects of the design process and that its potential to contribute to profitability was very low. The answers to this question ranged from not sure to very specific citations of instances where the use of STEP has made the company more profitable, competitive, or innovative. Those instances primarily centered on the change in processes both within the company and outside with respect to authoring and consuming data product quality and process improvement and for 2-10

25 propagating those data throughout the enterprise. Many companies have recently shifted from a process where the 2D drawing was the master product representation of record to one in which the 3D digital model is now the master record. Additionally, some interviewees stated that in some cases data was exchanged with an external source using STEP for the purpose of protecting the firm s intellectual property (IP). Another benefit has been the reduction of specific, proprietary translators to move digital product data from one system to another. One interviewee stated that if STEP did not exist, it would probably result in the establishment of an internal software group, which could likely add between two and five percent to their overhead costs. Another interviewee stated that using STEP has reduced their need for buying, building, and maintaining translator, freeing up between five and fifteen employees to perform other tasks. Adoption of the STEP standard can also reduce costs of exchanging data with external suppliers. One interviewee stated that their main suppliers prefer to use STEP instead of a drawing, and that using STEP significantly reduces the supplier s quoted price (typically percent) and delivery time for the product based on this one factor. This is because the OEM and supplier can more readily analyze and discuss the part in a 3D digital format than a 2D drawing. In general, however, most companies regard interoperability issues as hidden costs that they do not actively measure. While CAD applications usually export data easily, the data files imported by the target application may be incomplete or contain geometry errors that need to be healed. Additionally, interoperability issues tend to fall into two extremes for most users: trivial and catastrophic. Thus, when a firm suffers substantial problems with data exchange, their focus is on finding a solution, not measuring its cost. And in the case where a company experiences limited issues with data exchange, they accept what problems do exist as the cost of doing business, which may make firms less inclined to measure these costs or try other solutions Barriers to STEP s Development and Adoption by Industry As has been discussed, STEP is sometimes used for interference checking between electronic and mechanical systemap 210 is sometimes used internally, but not for the exchange of data across firms in industry. Many barriers to STEP s implementation relate to the perception that STEP cannot exchange product intelligence beyond visualization and GD&T. The following is a list of specific barriers that were mentioned by study participants: The incomplete implementation of STEP protocols by the EDA vendors, especially product manufacturing information (PMI), which results in a loss of design intent/product intelligence when converting to a STEP file, The lack of STEP implementation by downstream tools providers for inspection, manufacturing, and supply chain management, The slow maturation of the system engineering and product lifecycle APs, AP 233 and 239, respectively. File sizes of STEP files are often larger than other non-native EDA alternatives for simple use cases, The lack of relevant test cases at various stages of the product lifecycle in order to validate EDA vendor s implementations of STEP 2-11

26 A perennial problem with product model data standards is that they rely on software vendors to implement them. Many of the EDA professionals interviewed for this study perceived AP 210 as overly complex and cumbersome. They believe there is a significant learning curve involved in understanding and implementing the STEP schema. Likewise, EDA vendors also have the natural incentive not to fully implement open standards, since doing so makes it easier for their customers to transfer their data to competing products. CAx vendors in general would not see a benefit to developing a full-blown STEP translator unless there was considerable more interest from end users. Even then, STEP is only one of several open formats that facilitate data exchange. One vendor noted that because of the lengthy process to grow the STEP standard, practical concerns often dictate that vendors develop and implement simpler formats and/or only portions of STEP in order to lower product development costs and time to market Lack of Industry Awareness PDES, Inc. serves as the main industry voice for STEP in North America, but almost all of its members are primarily engaged in the mechanical side of transportation equipment manufacturing. Every two years, PDES issues a technical development plan based on a survey of all members and their hourly commitments for modeling. Unfortunately there has never been sufficient participation on the electronics side. Thus it is understandable that AP 210 is not wellmarketed relative to standards released by IPC, ProSTEP ivip, IEEE, and other organizations, which is why many in the electronics manufacturing industry have never heard of STEP Lack of Implementation by Vendors Perhaps the largest barrier to STEP s adoption in the electronics manufacturing industry is the lack of support by EDA vendors. The electronics software industry is a highly concentrated market dominated by only a few major players: Synopsys, Mentor Graphics, Cadence and Zuken. These firms already work with industry organizations such as IEEE and IPC to develop standards and do not see the benefit of developing STEP translators beyond the mechanicaloriented AP 203 and AP 214. While comprehensive, STEP is also perceived to be complex and challenging for software vendors to fully implement. One avionics manufacturer stated that they do not use STEP more precisely due to the lack of implementation by EDA vendors. A related issue is the lack of tool vendor engagement in the PDM/PLM STEP implementer forum and best practices pursuit. Developing and implementing standards make it easier for vendor s customers to transfer data to a competitor. EDA software vendors would much rather see the proliferation of their respective proprietary formats. In effect, there is a natural incentive to standardize the market by increasing market share and eliminating competition. While good for EDA companies, this can have the effect of reducing EDA product innovation and increasing licensing costs for OEMs and their suppliers Nature of Electronics Lifecycle Electronics design differs considerably from mechanical design. Electronic designs usually focus on logical and efficient layouts in lieu of appearance. In most areas of product development that involve the creation of electronics, there are the wiring/circuits portions of the design and then there are the enclosure, boards, pins and other solid components. The solid components are easily represented in today s parametric modeling tools, but the circuitry/wiring is not. 2-12

27 Moreover, much of the performance or manufacturing data that are important to the electrical components are not captured or represented geometrically. It is often a mathematically abstract piece of metadata that needs to be captured in the geometric model, or linked to it via a product data management (PDM) system. The nature of the product lifecycle affects the electronics industry in many of the same ways it affects the mechanical products industry: varying levels of virtual product description, disparate authoring tools, lifecycles that vary from years to decades, etc. Many electronic components of mechanical products can also be upgraded or replaced over time (e.g., avionics or communications equipment in airplanes), so a virtual version of the product model must be able to capture that upgrade or replacement accurately. While this capability is built into AP 210, few, if any, commercial CAx systems support it. Each company interviewed was asked to provide an overview of the product lifecycles with which they were most familiar. Lifecycles were defined as the entire period of a product s life from concept to customer support and disposal. The goal of the full series of interviews was to captures responses for a wide range of product lifecycle durations including short (3-18 months), medium (5-10 years), and long (20-50 years) duration. As would be expected from the diversity of the companies and individuals being interviewed, they voiced experience with product lifecycles that ranged from three months in the consumer electronics market all the way up to 50 years in the case of product developers in the aerospace industry. However, some individuals were quick to note that the time-to-market (TTM) from concept to production was shrinking over time across industries. This may be due to changes in economic pressures (changes in financing and industry competition) or the productivity gained from improved hardware and software design tools. One vendor respondent noted that for very short product lifecycles of six months or less, companies need to use pre-existing designs about 60 to 80 percent of the time. Rarely is there time for major innovation. This respondent also had clients in aerospace/defense with product lifecycles in the 30 to 40 year range, and highlighted the fact that those firms find themselves returning to previous designs less and less. Another vendor voiced the opinion that inertia plays a dominant role in electronic design companies are of the mindset that what works today, will work tomorrow, so there is little reason to change existing processes. This attitude contributes to a very slow adoption rate for new technology and design strategies, even though the underlying product may be considerably more technologically advanced than its predecessor. Short, predictable production cycles are considered critical to product success Other Standards Many consumer electronic products are developed in short design cycles of less than one year. The industry is accustomed to adopting standards from existing industry organizations such as the Institute of Electrical and Electronics Engineers (IEEE) and the Association for Connecting Electronics Industries (IPC) that roll out compact standards rather speedily. This is in sharp contrast to STEP s ISO process, which can take several years depending on the application protocol. The electronics manufacturing industry currently uses on a mix of standards depending on the use case. To communicate PCB design information to manufacturing, the industry mostly uses 2-13

28 Gerber and ODB++. The industry is also developing new standards through working groups like the IPC-2581 Consortium, which currently includes more than 60 PCB design and supply chain firms, including OEMs, CAx software companies, PCB fabricators, and electronics assemblers and test companies. The IPC-2581 standard is a free vendor-neutral, layer based schema for sharing PCB design and manufacturing information. The standard was first released in 2004, but a most recent version (Revision B) was released in The standard has gained some traction among major EDA vendors despite the fact that IPC-2581 does not yet allow for complete 3D visualization. Another widely used format is the Intermediate Data Format (IDF). Originally developed in 1992, IDF has become a de facto industry standard for exchanging printed circuit assembly information between ECAD and MCAD systems. That is, it is used to exchange format between MCAD and ECAD during the design process. Unfortunately, the IDF format as it is currently implemented by vendors cannot represent all the data available in modern CAD systems. Engineers oftentimes use an extra file based on Autodesk s Data exchange Format (DXF) to exchange data not supported by IDF. IDF also does not support collaboration methods such as accepting or rejecting proposed design changes. As design modeling technology has advanced, new challenges have appeared including the need to present a 3D view of printed circuit board (PCB) designs and their enclosures. There is also a demand for software that allows users on both the mechanical and electronic side to more fully collaborate on design. As discussed in Section 2.5, ProSTEP ivip adapted AP 210 and AP 214 to create a new XML-based standard called EDMD (Electrical Design Mechanical Design). Files using this schema have the extension.idx, which stands for the Incremental Data exchange (IDX). Electronics manufacturing firms are adopting the EDMD standard in lieu of IDF or other exchange formats because it allows for incremental, dynamic collaboration between ECAD and MCAD domains The Future of STEP in Electronics Manufacturing Many Electronics OEMs and suppliers have not heard of STEP s electronic-oriented component, AP 210. Indeed, the lack of EDA vendor s implementation of AP 210 raises concern about STEP s long-term viability as an exchange format in electronics manufacturing. STEP does play a role in the overlap between electronic and mechanical design, but it is typically isolated to simple geometry based on the AP 203 or AP 214 protocols. That is, STEP is used to represent 3D models of electronic systems and check for interference with their intended enclosures. This is an important step in the design process, but it falls short of STEP s full potential for electronic and mechatronic design and manufacturing. The industry experts interviewed for this study were not aware of any significant efforts to improve STEP functionality in EDA applications. There are many problems in the areas of manufacturability, data exchange, and LOTAR that STEP could potentially address. STEP could, for example, be used as part of a solution to improve producibility analysis. This includes merging ECAD and MCAD models into a single producibility analysis tool that enables comprehensive visualization of electronics components, including views of circuit networks at the system level, box level, board level, and traces between components within a circuit board. Avionics companies are actively investigating the benefits of using STEP for PDM/PLM data management, LOTAR, and in systems engineering. However, across all the interviews 2-14

29 conducted, the consensus was that most electronics manufacturing companies do not have significant long-term data archives. For those that do, the most common solution was to store native CAx databases either on a saved disk or in a product data management (PDM) system. Such plans are regarded as temporary as the archived native CAx format may be rendered obsolete and unsupported in only a few years. True LOTAR requires a standard, open, vendorneutral format, like STEP, that could readily be imported by future systems. This capability will become increasingly important as manufacturing industries move to a model-based enterprise (MBE) environment, in which the 3D digital model stored in a PLM system is the authoritative definition of the product. STEP s latest AP, AP 242, could be used with other APs to facilitate and accelerate the transition to MBE, but they are structured more for mechanical or mechatronic applications, such as wire harnesses, rather than pure electronics design. The electronics manufacturing industry is also moving to a model-based environment (perhaps more slowly), but is currently looking to other vendor-neutral standards, such as IPC-2581 and EDMD. (EDMD, while based in part on AP 210 and AP 214, is separate from STEP and is not developed through ISO.) Looking forward, these standards could be used in conjunction with AP 233, AP 242, and AP 239 for MBE and LOTAR for mechatronic products. Barring significant efforts from EDA vendors and standards organizations to implement AP 210 and AP 242, however, most of the electronics manufacturing industry will continue to underutilize STEP. 2-15

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31 3. ELECTRONICS MANUFACTURING OVERVIEW Table 3-1 displays the subsectors of electronics manufacturing included in this study by their 4- digit and 6-digit industry codes defined by the North American Industry Classification System (NAICS). These industries directly account for over 770,000 US jobs and support millions more that rely on their products. Approximately 68,000 of those jobs belong to the computer hardware and electronics engineers who design, test, and supervise the manufacturing of electronic systems (U.S. Bureau of Labor Statistics, 2014). This is the core group of U.S. professionals who regularly work with electronics CAx data. Table 3-1. Electronics Manufacturing Industries Included in this Study, by 4-Digit and 6-Digit NAICS Code Computer and Peripherals Industry 3341 Computer and Peripheral Equipment Manufacturing Electronic Computer Manufacturing Computer Storage Device Manufacturing Computer Terminal and Other Computer Peripheral Equipment Manufacturing Communication and Navigation Equipment Industry 3342 Communications Equipment Manufacturing Telephone Apparatus Manufacturing Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing Other Communications Equipment Manufacturing Navigational, Measuring, Electromedical, and Control Instruments Manufacturing Search, Detection, Navigation, Guidance, Aeronautical, and Nautical Systems and Instrument Manufacturing Audio and Visual Equipment Industry 3343 Audio and Video Equipment Manufacturing Audio and Video Equipment Manufacturing Semiconductors and Other Electronic Components Industry 3344 Semiconductor and Other Electronic Component Manufacturing Bare Printed Circuit Board Manufacturing Semiconductor and Related Device Manufacturing Capacitor, Resistor, Coil, Transformer, and Other Inductor Manufacturing Electronic Connector Manufacturing Printed Circuit Assembly (Electronic Assembly) Manufacturing Other Electronic Component Manufacturing Note: NAICS code descriptions obtained from U.S. Bureau of the Census,

32 3.1. Industry Landscape and Economic Trends The electronics manufacturing sector produces a wide array of hardware that make the modern digital economy possible. The following section describes the products, industry landscape, and recent economic trends for the U.S. computer and peripheral (CP); communication and navigation (CN); audio and visual (AV); and semiconductor manufacturing industries. Overall, U.S. electronics manufacturing is a highly consolidated industry characterized by large increases in labor productivity and fixed-output cost reductions over time Computer and Peripheral Equipment Manufacturing CP products include mainframes, servers, desktops, laptops, and tablets, connecting devices such as hard drives, printers, keyboards, and routers, and commercial systems such as ATMs and merchant point-of-sale devices. Major U.S.-based original equipment manufacturers include some of most influential consumer companies in the country, including Hewlett-Packard, Dell, Apple Inc., IBM, and Cisco Systems, among others. Many other best-selling computers and peripherals are foreign brands with major U.S. operations, such as Lenovo (China), Samsung Electronics (South Korea), Toshiba (Japan), Canon (Japan) and Logitech (Switzerland). Most U.S. computer and peripheral OEMs outsource their PCB manufacturing to specialized suppliers. Examples of major suppliers include Foxconn (Taiwan), Pegatron (Taiwan), Flextronics (Singapore), Sanmina-SCI (US), Celestica (Canada), and Jabil (US). The U.S. CP market is highly concentrated about 50 firms generate 80 percent of industry sales but it is also highly competitive and innovative. CP & semiconductor OEMs regularly spend more on R&D than any other industry in the country. U.S.-based Intel, IBM, and Cisco alone spent $22.7bn on R&D in 2014 (PWC, 2014). Table 3-2 displays recent economic trends for CP manufacturing, with an emphasis on the study period. CP manufacturing employment increased 6.1 percent annually between 2002 and 2010 despite the long-term downward trend in U.S. manufacturing jobs more generally. The CP manufacturing industry also relies on a highly-skilled workforce; the average annual compensation for U.S. employees in the CP manufacturing industry is consistently among the highest in the country. Labor productivity grew an annual 23.4 percent between 2002 and 2006, compared to just 2.4 percent for U.S. manufacturing as a whole. However, productivity declined sharply during the recession, which caused many households and businesses to delay their purchases of new computers. This demonstrates the industry s sensitivity to macroeconomic conditions. U.S. demand for CP equipment has since increased, but most of the growth has been met by a rise in imports rather than domestic sales (Nicholson and Noonan, 2014). The outsourcing of fabrication and select sub-assemblies is common throughout the electronics manufacturing sector. A modern laptop computer may have parts manufactured and assembled in several countries by dozens of different firms. Dell, for example, lists 132 suppliers around the world (Dell, 2014). The increased globalization and modularization/specialization of electronics manufacturing only strengthens the need for international product data standards, such as STEP, to serve as a neutral format for exchanging information between firms different systems. 3-2

33 Table 3-2. Economic Trends in U.S. Computer and Peripheral Equipment Manufacturing (2013$) Study Period ( ) Total Employment 85, , , ,954 Average Annual Growth 7.6% 4.7% 2.7% 6.1% Average Annual Pay $110,607 $132,296 $146,721 $148,954 Average Annual Growth 4.6% 2.6% 0.5% 3.6% Labor Productivity NA Average Annual Growth 23.4% 4.0% 13.3% Value of Shipments ($bn) 2 $35,766.0 $44,627.3 $33,651.5 $28,044.0 Average Annual Growth 5.7% -6.8% -5.9% -0.8% Balance of Trade ($Bn) -$12.0 -$25.0 -$39.8 -$50.4 Exports $25.8 $39.2 $42.7 $ % Imports $37.8 $64.2 $82.5 $ % Notes: 1 Index normalized so that 2002=100; labor productivity not yet available for Value of Shipments is the dollar value of products sold by manufacturing establishments. Monetary variables are in constant 2013 dollars. Data shown for NAICS code , , and only. Sources: U.S. Bureau of Labor Statistics, 2014a,b; U.S. Bureau of the Census, 2014a,b Communication and Navigation Equipment Manufacturing Communication equipment manufacturing includes a wide range of high volume products, including landline/mobile phones (including smartphones), GPS devices, alarm systems, antennas, and broadcast radio, TV, and wireless networking equipment. Many of these products are designed and mass produced quickly (15-18 months) and have short lifecycles (KPMG, 2008). U.S. cell phone users, for example, on average replace their phones every 18 months (BSR, 2011). Examples of major communication equipment manufacturers operating in the U.S. include Alcatel-Lucent USA, Inc., L-3 Communications, Motorola, Avaya, Cisco, and Harris Corporation. In contrast to communication equipment, navigation equipment manufacturers produce relatively low volume, specialized products designed for long in-service use. These products are primarily the electronic instruments found in airplanes, satellites, and ships, such as radar, sonar, avoidance collisions systems, and flight recorders. The communication and navigation equipment industries are classified under different NAICS codes (3342 and , respectively) but are often found together in transportation equipment systems. Defense systems such as fighter jets and warships make up a significant share of overall demand. Compliance with government security and procurement regulations poses significant barrier to entry that separates defense contractors from consumer-oriented companies. Examples of major navigational equipment manufacturers include Northrop Grumman, Raytheon, Honeywell, BAE Systems, and Rockwell Collins. Table 3-3 summarizes recent economic trends in the Communications and Navigational Equipment industries. Growth in the annual value of shipment over the last decade (7.3 percent) outpaced both wages (1.6 percent) and labor productivity (3.0 percent). Employment fell

34 percent annually over the period, part of a longer downward trend in U.S. communications equipment manufacturing. Much of the decline is attributable to growing global supplier outsourcing and increased foreign competition from Asia. The boom in mobile phone users in the 2000s disproportionally benefitted foreign OEMs and suppliers more than U.S. industry between 2002 and 2010, imports rose 20.5 percent year, on average, compared to 11.2 percent annual growth in exports. Table 3-3. Economic Trends in U.S. Communication and Navigational Equipment Manufacturing (2013$) Study Period ( ) Total Employment 330, , , ,425 Average Annual Growth -2.3% -3.3% -4.5% -2.8% Average Annual Pay $89,230 $97,583 $101,087 $103,514 Average Annual Growth 2.3% 0.9% 0.8% 1.6% Labor Productivity NA Average Annual Growth 7.6% -1.5% 3.0% Value of Shipments ($bn) 2 $47.2 $73.4 $83.1 $97.4 Average Annual Growth 11.7% 3.2% 5.4% 7.3% Share of Shipments by Product Group Communications (Civilian) 63.1% 57.8% 39.2% 43.1% Navigation (Defense) 23.6% 27.2% 39.8% 35.5% Navigation (Civilian) 9.5% 9.5% 14.7% 16.1% Communications (Defense) 3.7% 5.5% 6.3% 5.3% Balance of Trade ($bn) -$5.0 -$21.6 -$49.8 -$66.5 Exports $13.0 $20.2 $30.2 $ % Imports $18.0 $41.8 $80.0 $ % Notes: 1 Index normalized so that 2002=100; labor productivity not yet available for Value of Shipments is the dollar value of products sold by manufacturing establishments. Monetary variables are in constant 2013 dollars. Data shown for NAICS code 3342 and only. Sources: U.S. Bureau of Labor Statistics, 2014a,b; U.S. Bureau of the Census, 2014a,b Audio and Visual Equipment Manufacturing The audio and visual (AV) equipment manufacturing industry designs and assembles automobile and household-type electronics such as CD/DVD players, televisions, and stereo systems. Many of the world leaders in AV equipment manufacturing are headquartered in Japan or South Korea but have major operations in the U.S., such as Pioneer, JVC, Sharp, Sony, Samsung, and LG Electronics. Examples of U.S.-based AV OEMs include Harman International Industries, Knowles, Bose, and Voxx International Corporation. 3-4

35 Table 3-4. Economic Trends in U.S. Audio and Visual Equipment Manufacturing (2013$) Study Period ( ) Total Employment 41,702 31,099 20,042 19,115 Average Annual Growth -7.1% -10.4% -1.6% -8.8% Average Annual Pay $63,208 $71,199 $81,101 $82,611 Average Annual Growth 3.0% 3.3% 0.6% 3.2% Labor Productivity NA Average Annual Growth 9.9% -19.8% -6.1% Value of Shipments ($bn) 2 $3.8 $6.0 $1.9 $3.2 Average Annual Growth 12.0% -25.3% 19.9% -8.5% Balance of Trade ($bn) -$15.2 -$29.5 -$32.3 -$26.1 Exports $3.7 $6.6 $9.5 $ % Imports $18.9 $36.1 $41.8 $ % Notes: 1 Index normalized so that 2002=100; labor productivity not yet available for Value of Shipments is the dollar value of products sold by manufacturing establishments. Monetary variables are in constant 2013 dollars. Data shown for NAICS code 3343 only. Sources: U.S. Bureau of Labor Statistics, 2014a,b; U.S. Bureau of the Census, 2014a,b. Table 3-4 displays recent economic trends for the AV industry. Like the communications industry, AV OEMs have outsourced most of their manufacturing and assembly to low-cost foreign firms in order to stay profitable in an increasingly competitive U.S. consumer electronics market. LG, Hitachi, and Samsung, for example, all moved most of their U.S.-based manufacturing and assembly to other Asian suppliers over the last decade. The effects of this shift are apparent in the 45.8 percent decline in total employment between 2002 and Labor productivity and the real value of shipments also fell over the same period, exacerbated by a sharp decline in consumer spending during the recession Semiconductors and Other Electrical Component Manufacturing Semiconductors (microchips) and other electronic components design and fabricate the building blocks of electronic systems. Microchip development accounts for the vast majority of the industry s R&D and capital spending. The U.S. remains at the cutting edge of semiconductor design. In 2013, 11 of the top 20 semiconductor OEMs by revenue were headquartered in the U.S. (IHS Inc., 2014). There are several types of semiconductor chips manufactured for particular uses cases in electronic systems. Some of the most widely-recognized U.S. semiconductor firms are Intel and AMD, which manufacture central processors (CPUs) for personal computers, Micro Technology, which manufactures memory chips, and Texas Instruments, which manufactures high performance digital signal processors. Other electronic components include circuit boards, capacitors, and resistors, and transformers. These components are orders of magnitude less complex than semiconductors and require much lower levels of R&D investment. 3-5

36 Table 3-5. Economic Trends in U.S. Semiconductor and Other Electrical Component Manufacturing (2013$) Study Period ( ) Total Employment 523, , , ,727 Average Annual Growth -3.4% -5.1% 0.2% -4.2% Average Annual Pay $76,872 $87,242 $88,881 $91,932 Average Annual Growth 3.2% 0.5% 1.1% 1.8% Labor Productivity NA Average Annual Growth 11.7% 17.3% 14.4% Value of Shipments ($bn) 2 $15.1 $29.8 $46.7 $60.5 Average Annual Growth 18.5% 11.9% 9.0% 15.2% Balance of Trade ($bn) $4.0 $0.1 -$2.1 -$14.6 Exports $39.5 $57.8 $62.2 $ % Imports $35.5 $57.7 $64.3 $ % Notes: 1 Index normalized so that 2002=100; labor productivity not yet available for Value of Shipments is the dollar value of products sold by manufacturing establishments and reflects a combination of data from Census Bureau and the Semiconductor Industry Association. Monetary variables are in constant 2013 dollars. Data shown for NAICS code 3344 only. Sources: U.S. Bureau of Labor Statistics, 2014a,b; U.S. Bureau of the Census, 2014a,b; SIA, Table 3-5 displays recent economic trends in the semiconductor and other electrical component industry, which constitutes the backbone for all modern electronics systems. As with other electronic manufacturing industries, U.S. semiconductor-related employment declined over the period even as real wages increased. Labor productivity and the total value of industry shipments grew an annual average 14.4 percent and 15.2 percent, respectively, outpacing all other electronic manufacturing subsectors. Over this same period, imports grew an average annual 7.7 percent compared to 5.9 percent annual growth in exports, shifting the U.S. balance of trade from $4.0 billion net exports in 2002 to $14.6 billion net exports in Electronics Manufacturing Process Supply Chain The electronics manufacturing industry can be segmented into Original Equipment Suppliers (OEMs) and tiers of specialized electronics manufacturing service (EMS) providers. It is common for U.S. manufacturers to focus on R&D (including design), final assembly and test, and outsource the actual fabrication and packaging of electronic components to EMS providers concentrated in Asia. Figure 3-1 visually depicts this global supply chain, broken down into four major manufacturing steps: (1) product design, (2) semiconductor fabrication and packaging, (3) component and subsystem assembly, and (4) final assembly. 3-6

37 Figure 3-1. Global Electronics Manufacturing Supply Chain Intellectual Property Source: VentureOutsource.com, 2014 (courtesy of IDC Manufacturing Insights). A major concern for electronics manufacturing firms sharing product model data is protecting the intellectual property (IP) inherent in the layout of integrated circuits and electronic systems. In the absence of IP protection, electronic manufacturing services (EMS) providers who supply components to the OEMs could use OEM s design data to reverse engineer and copy IC layouts. Legal contracts between OEMs and EMS providers are the main defense against IP theft, but they are not a guaranteed deterrent. Most of the latest ECAD/EDA packages incorporate some way to secure or limit IP theft, such as exporting partial, lightweight product model data that only contain the specific data the supplier needs to manufacture the part. This can also be done by manually deleting non-essential information from the EDA model, but this a laborious and error-prone process. The concern for IP may be one reason electronics OEMs do not apply more pressure on EDA vendors to fully implement open standards such as STEP. The partial geometry of current EDA vendor s implementations of STEP is sufficient to conduct interference checks without compromising more detailed design information Design and Development The basic unit of modern electronics is the integrated circuit (IC), or microchip, a multi-layered series of electronic components made from small wafers of semiconductors such as silicon. Intel co-founder Gordon Moore famously predicted in the 1960s that the the number of transistors incorporated in a chip will approximately double every 24 months (Intel, 2014). This trend, colloquially known as Moore s Law, has been borne out by the exponential improvements observed over the last fifty years in the cost-performance of computing power, digital storage, and bandwidth. ICs and other components can be assembled on a printed circuit board (PCB) in ever-increasing complexity to serve as a stand-alone device or as part of an enclosed, 3-7

38 interconnected electrical system. Ongoing improvements are made possible by a positive feedback loop in which the latest microchips and electronic systems become a capital input in the next development cycle. The general design and development process for electronic systems is similar to mechanical manufacturing in that a concept is developed, prototyped, and tested before entering production. But the similarities mostly end there. Complex electronics begin with a logic-based design that has no physical parameters or dimensions. Rather, it is an abstract representation of a circuit programmed through text modules in a specialized Hardware Description Language (HDL) much in the same way a software engineer would use a programming language to write an algorithm. Designers exhaustively test the code to verify the circuit before moving to the physical circuit board level. The most popular HDLs in use today are VHDL and Verilog. Both VHDL and Verilog are both open IEEE standards. The next phase is selecting parts for the circuit that satisfy the logic design and representing the physical circuit on a printed circuit board (PCB). The most basic PCBs can be one or more layers of conductive metals (such as copper) and non-conductive substrate. Newer PCBs can also be flexible strips of copper encased in flexible plastic substrates. The majority of EDA design is done in proprietary EDA software. Major vendors include Cadence, Mentor Graphics, Synopsys, and Zuken. Once the PCB design is fully analyzed and tested in an EDA environment, the product model may be selectively broken into layers with manufacturing information for PCB fabricators. The current de facto industry standard for this CAD-to-CAM process is an over 30- year old 2D vector file format called Gerber, now developed by Ucamco, and the semi-open standard ODB++, developed by Mentor Graphics. Gerber has undergone many revisions since it was released in 1980 to accommodate new design processes, but the latest version is not always implemented by vendors. Gerber remains the most widely used format for exchanging PCB design, major electronics industry stakeholders are also evaluating the newer, vendor-neutral format IPC-2581, which can provide data for PCB fabrication, assembly and testing in a single file. These general steps of electronics manufacturing are almost always part of a much larger manufacturing process that involves interference checking with mechanical design, software integration, and wire harness design to interconnect several electronic sub-systems. Figure 3-2 displays a flowchart of all the major steps in a modern electromechanical approach to product design and development. Currently, STEP is used much more extensively for mechanical design than electronic design, but it is also used across domains to ensure that the electronics fit in the packaged enclosure. 3-8

39 Figure 3-2. Integrated Product Lifecycle of Electromechanical Products Siemens PLM,