Industry Survey Finds U.S. Electronics Manufacturers May Exit the Defense Market Due to High Costs Associated with CMMC

 

Washington, D.C. – June 8, 2021 – In a new IPC industry survey and report, one-quarter (24 percent) of electronic manufacturers say the costs and burdens of compliance with the Cybersecurity Maturity Model Certification (CMMC) may force them out of the U.S. Department of Defense’s (DoD) supply chain.

The survey conducted by IPC, the global electronics manufacturing association, also finds that for many small- to medium-size businesses (SMB), the costs and burdens of CMMC compliance may outweigh the benefits of doing business with the DoD.

In addition, 33 percent of respondents say the CMMC will weaken the U.S. defense electronics industrial base, while 18 percent are unsure, highlighting the uncertainties involved. And 41 percent believe applying the CMMC clause to their suppliers will create other problems in the supply chain.

“Cybersecurity is a must for U.S. national security, but the costs and burdens of achieving CMMC compliance under the current approach will likely force many small and medium-sized manufacturers out of the DoD supply chain, negatively impacting national security,” said John Mitchell, IPC president and CEO. “The objectives of CMMC are well-intentioned, but they must not be achieved at the expense of other key aspects of supply chain health.”

Most suppliers expect and are willing to spend upwards of $50,000 on CMMC readiness, and nearly one-third (32 percent) report that it will take them one to two years to prepare to undergo CMMC assessment. However, more than half of the suppliers say implementation costs of more than $100,000 would make CMMC readiness too expensive. DoD’s own cost analysis estimated the cost of a CMMC Maturity Level 3 (ML3) certification to be more than $118,000 in the first year. This means DoD’s own estimate of CMMC compliance costs is too high for 77 percent of the IPC survey respondents.

“The Pentagon needs to take into consideration that most SMBs do not have dedicated cybersecurity personnel to achieve the prerequisites, and while many commercial electronics manufacturers have considerable business with the defense community, they themselves do not consider themselves a defense contractor,” added Mitchell.

The study’s author, cyber security expert Leslie Weinstein, says the DoD can reduce the costs and uncertainties of CMMC compliance by leveraging existing industry standards and certifications, such as IPC-1791, the electronics industry’s “Trusted Supplier” standard, which was designed in collaboration with the DoD; or the certifications offered by HITRUST or the International Standards Organization.

“The DoD recognizes a variety of respected, industry-driven certifications when it comes to hiring cybersecurity professionals,” says Weinstein. “Taking the same approach to certifying suppliers would allow companies to invest more in security than in redundant audits, and it would quickly create a pool of companies who are able to bid on DoD solicitations containing the CMMC DFARS clause. And importantly, it would prevent further erosion of the U.S. defense industrial base.”    

IPC fielded the survey between February 25 and March 5, 2021 and garnered 108 responses from contract manufacturers, printed circuit board fabricators, original equipment manufacturers and suppliers who self-reported they are planning to undergo a CMMC assessment in the next five years.

About IPC

IPC (www.IPC.org) is a global industry association based in Bannockburn, Ill., dedicated to the competitive excellence and financial success of its nearly 3,000 member companies which represent all facets of the electronics industry, including design, printed board manufacturing, electronics assembly, and testing. As a member-driven organization and leading source for industry standards, training, market research and public policy advocacy, IPC supports programs to meet the needs of an estimated $2 trillion global electronics industry.

 

EMS North America Industry Report, April 2021

IPC Releases EMS Industry Results for April 2021

IPC announced today the April 2021 findings from its North American Electronics Manufacturing Services (EMS) Statistical Program. The book-to-bill ratio stands at 1.62.

Total North American EMS shipments in April 2021 were up 10.5 percent compared to the same month last year. Compared to the preceding month, April shipments fell 11.9 percent.

EMS bookings in April rose 22.6 percent year-over-year and but decreased 14.0 percent from the previous month.

“The North American EMS industry once again hit a new record this month with the book-to-bill ratio hitting another all-time high,” said Shawn DuBravac, IPC’s chief economist. “It is clear supply constraints and other disruptions are stymieing production while at the same time orders continue to be very strong. As a result, backlogs continue to build in the electronics supply chain.”

April 2021 EMS book to bill chart

View chart in pdf format

Detailed Data Available

Companies that participate in IPC’s North American EMS Statistical Program have access to detailed findings on EMS sales growth by type of production and company size tier, order growth and backlogs by company size tier, vertical market growth, the EMS book-to-bill ratio, 3-month and 12-month sales outlooks, and other timely data.

Interpreting the Data

The book-to-bill ratios are calculated by dividing the value of orders booked over the past three months by the value of sales billed during the same period from companies in IPC’s survey sample. A ratio of more than 1.00 suggests that current demand is ahead of supply, which is a positive indicator for sales growth over the next three to twelve months. A ratio of less than 1.00 indicates the reverse.

Year-on-year and year-to-date growth rates provide the most meaningful view of industry growth. Month-to-month comparisons should be made with caution as they reflect seasonal effects and short-term volatility. Because bookings tend to be more volatile than shipments, changes in the book-to-bill ratios from month to month might not be significant unless a trend of more than three consecutive months is apparent. It is also important to consider changes in both bookings and shipments to understand what is driving changes in the book-to-bill ratio.

IPC’s monthly EMS industry statistics are based on data provided by a representative sample of assembly equipment manufacturers selling in the USA and Canada. IPC publishes the EMS book-to-bill ratio by the end of each month.

Economic Recovery Continues Across the Globe

IPC’s May 2021 Economic Report

The economic narrative we’ve been building in recent months continues to play out. First, COVID will be the predominant force defining economic growth in the early months of the recovery. Secondly, as COVID cases decline, economies will reopen, which will help fuel organic economic growth. Thirdly, as COVID recedes and economies reopen, pent-up demand will drive consumer spending, especially for services. Fourth, fiscal stimulus and accommodative monetary policy will be significant accelerants to economic recovery. The economies with the most fiscal and monetary support and stimulus will see the strongest growth rates.

In this month’s economic outlook report from IPC, you will find U.S. and European data on economic growth, employment, consumer sentiment, manufacturers’ sentiment (PMI), manufacturing capacity utilization and end markets for electronics.

READ MAY REPORT

North American PCB Industry Sales Up 6.0 Percent in April

IPC Releases PCB Industry Results for April 2021

IPC announced today the April 2021 findings from its North American Printed Circuit Board (PCB) Statistical Program. The book-to-bill ratio stands at 1.16.

Total North American PCB shipments in April 2021 were up 6.0 percent compared to the same month last year. Compared to the preceding month, April shipments fell 18.1 percent.

PCB bookings in April fell 10.2 percent year-over-year. Bookings in April decreased 27.8 percent from the previous month.

“After strong orders in March, April PCB shipments were constrained by ongoing supply chain disruptions,” said Shawn DuBravac, IPC’s chief economist. “The coming months will likely show volatile order and shipment flows.”

April 2021 book to bill ratio
April 2021 book to bill ratio chart two

View charts in pdf

Detailed Data Available

Companies that participate in IPC’s North American PCB Statistical Program have access to detailed findings on rigid PCB and flexible circuit sales and orders, including separate rigid and flex book-to-bill ratios, growth trends by product types and company size tiers, demand for prototypes, sales growth to military and medical markets, and other timely data.

Interpreting the Data

The book-to-bill ratios are calculated by dividing the value of orders booked over the past three months by the value of sales billed during the same period from companies in IPC’s survey sample. A ratio of more than 1.00 suggests that current demand is ahead of supply, which is a positive indicator for sales growth over the next three to twelve months. A ratio of less than 1.00 indicates the reverse.

Year-on-year and year-to-date growth rates provide the most meaningful view of industry growth. Month-to-month comparisons should be made with caution as they reflect seasonal effects and short-term volatility. Because bookings tend to be more volatile than shipments, changes in the book-to-bill ratios from month to month might not be significant unless a trend of more than three consecutive months is apparent. It is also important to consider changes in both bookings and shipments to understand what is driving changes in the book-to-bill ratio.

IPC’s monthly PCB industry statistics are based on data provided by a representative sample of both rigid PCB and flexible circuit manufacturers selling in the USA and Canada. IPC publishes the PCB book-to-bill ratio by the end of each month.

Introducing New Training Courses for Frontline Operators

May 24, 2021

IPC is committed to providing training solutions that meet trainees at their level and help build a culture of continuous learning throughout the electronics manufacturing industry. IPC President and CEO John Mitchell introduces new training courses for frontline operators.

India REACH Within Reach, Final Draft Coming Soon

May 21, 2021

By Fanyu Zhang, EHS Fellow for IPC Global Government Relations

The government of India is nearing completion of European-style regulations on chemical substances. A sixth and expected-to-be final draft of a new Registration, Evaluation, Authorization and Restriction of Chemicals (REACH) rule – similar to the European Union’s REACH legislation – will be released later this year by India’s Ministry of Chemicals and Fertilizers.

Under the rule, existing and new chemical substances manufactured, imported, or used within India are required to be notified, registered, and reported under certain circumstances by manufacturers, importers, or authorized representatives (AR). The rule would have far-reaching impacts for businesses in India and some of their suppliers, including in the electronics sector.

Here is what we know about what is emerging.

Initial notification process

An Initial 180-day Notification Period (INP) will start one year from the effective date of the rule. All chemical substances notified within the INP would be considered existing chemical substances, others will be considered as new chemical substances. If a new chemical substance is to be placed on the market in India, it will need to go through a notification process within 60 days prior to its placement.

An annual report will be required from importers, manufacturers or ARs that have notified a substance within 60 days of every calendar year, which is by February 29 or March 1 each year.

Registration process for priority substances

Upon notification, each substance will be evaluated to determine if it falls within the “priority substance” category. During evaluation, chemical substances may be recommended for “addition to” or “deletion from” Schedule II (List of Priority Substance). Priority substances include:

  • Any substance which falls under any of the following hazard classifications of the eighth revision of the United Nations Globally Harmonized System of Classification and Labelling of Chemicals (GHS Rev. 8):
    • Carcinogenicity and/or germ cell mutagenicity and/or reproductive toxicity and categorized as Category 1 or 2; or
    • Specific target organ toxicity (repeated exposure or single exposure) Category 1 or 2.
  • Any substance which fulfills the criteria of persistent, bio-accumulative and toxic or very persistent or very bio-accumulative, as set out in Schedule I of the rule; and/or
  • Any substance listed in Schedule II of the rule (750 substances).

All manufacturers, importers, and ARs that have placed or intend to place priority substances on the Indian market in quantities that exceed 1 ton per year must register the substance within 18 months from the date of inclusion of the substance in Schedule II. Requirements for registration of priority substances under 1 ton per year will be based on the recommendation of the authority.

Articles, i.e., products, would need to be registered if they entail an intended release of priority substances and are manufactured or imported in quantities in excess of 1 ton per year.

Intermediates shall also comply with the same notification and registration requirements. Registrations of transported intermediates that are priority substances manufactured or imported in excess of 1,000 tons per year shall contain all information as required in the Technical Dossier and the Chemical Safety Report. Transported intermediates that are priority substances under 1,000 tons per year shall only contain details regarding the physical and chemical properties in the Technical Dossier.

Assessment and evaluation processes

Manufacturers, importers, and ARs which place priority substances on the market in India in quantities greater than 10 tons per year would be required to perform a Chemical Safety Assessment (CSA) and submit a Chemical Safety Report (CSR) at the time of notification or registration. Manufacturers, importers, and ARs which place priority substances on the market in India in quantities less than or equal to 10 tons per year, but more than 1 ton per year would be required to submit an Exposure Scenario.

The available data of registered substances will be assessed to evaluate whether they pose an unacceptable risk to human health or the environment during various uses in India. If the risk posed by the use of a priority substance is substantial, the use of the substance may be restricted or prohibited.

Restricted and hazardous substances

Upon registration, an evaluation will be conducted to determine if the substances meet the criteria for a hazardous substance, restricted substance, or prohibited substance. Based on the evaluation, a substance may be added or deleted from Schedules X, XI or XII (Lists of Hazardous Substances) or Schedule IV (List of Restricted or Prohibited Substances). Once restricted, authorization will be required for a substance to be imported or manufactured, along with other requirements for transportation, storage, and labeling.

Here is the full text of the Rule’s fifth draft.

IPC will continue to monitor progress toward the final REACH rule in India and will provide updates as necessary. Please let us know if you have any questions. The point of contact is Kelly Scanlon, IPC’s director of environment, health and safety policy and research.

More Than 50 CEOs Urge President Biden and Secretary Raimondo to Take Action to Improve Electronics Manufacturing Ecosystem

Secretary Raimondo to Hold Summit with Industry Leaders Today to Address Chips Shortage Crisis

More than 50 CEOs urged Commerce Secretary Gina Raimondo to take concrete steps to address challenges confronting the entire U.S. electronics supply chain.                            

The letter organized by members of IPC, a global electronics manufacturing association, urges Sec. Raimondo to address “a fundamental mistake” that has characterized U.S. technology policy for decades: the idea that the United States can be a technology leader by designing electronic products that cannot be domestically manufactured.                                                             

The letter argues that despite the outsized importance of electronics in the modern economy, for decades, the United States has failed to sufficiently value the importance of electronics manufacturing. U.S. policy bolstered specific components of the electronics supply chain – especially semiconductors – without fully appreciating that electronics is a sophisticated ecosystem. Like any ecosystem, each component must be resilient for the entire ecosystem to thrive.

“The electronics industry is encouraged by President Biden’s commitment to boost investment in American manufacturing and semiconductor research,” said John Mitchell, IPC president and CEO. “U.S. investment in semiconductors is much needed, but so, too, is investing in the broader supply chain involved in packaging silicon and electronics components.”                                           

The signatories support the Biden administration’s efforts to shore up the semiconductors supply chain, and they encourage the administration to develop concrete steps to achieve the following goals:

  • Creation of a National Manufacturing Institute for Electronic Interconnection to scale up advanced manufacturing processes intended for consumer electronics while ensuring that reliability is increased for use in the safety-critical sectors of aerospace, defense, and transportation.
  • Direct the Office of the Secretary of Defense for Industrial Policy to enact a Title III Program focused on developing advanced circuit board manufacturing processes and techniques for advanced materials and to modernize capital equipment to handle the new material processes.  
  • Boost funding and broaden the NIST Manufacturing Extension Partnership (MEP) scope to include a specific focus on the electronics technologies segment (like they currently have for the food industry) and Supplier Scouting to help support small to medium-sized businesses in those areas.
  • Expand the CHIPS for America Act review of supply chains to ensure electronics technology, including PCB manufacturing/assembly and advanced packaging, is incorporated. 
  • Develop trusted partnerships through international agreements with allied nations and provide for multiyear procurements of military electronics, enabling American manufacturers to plan and update capital improvements to manufacture tomorrow’s electronics systems, and enhancing supply chain resilience.
  • Mandate a partnership between the Manufacturing Technologies (ManTech) Program and DARPA to provide a technology maturation and application transition pathway for leap-ahead packaging solutions developed by DARPA through a multi-year series of grand challenge events. This would enable U.S. electronics manufacturers to tackle their biggest technical challenges and develop the intellectual property to remain competitive in the future.
  • Expand existing DOD- and DOE-wide bandgap compound semiconductor technology development programs to focus on modules and packaging to firmly establish this new high-performance semiconductor packaging segment in the United States before it moves overseas. 

The electronics manufacturing industry is at the heart of the modern economy. It is a robust, vertical industry generating more than $700 billion a year in U.S. GDP and jobs for more than 5 million people. It is also a critical segment of the supply chain for every other sector of the economy, including automotive, defense, aviation, financial services, health care, consumer, telecommunications and agriculture. In today’s world, our lives depend on electronics, and that dependence is growing.                                                

The full letter and signatories can be found here.

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