A perspective on the definition of value in the RF supply chain
Whether you have been in the RF and microwave world for five years or 50 years, we have seen the industry change at a continuously accelerating pace. We have watched consolidation on a historic scale, where brand names in the 70s, 80s and even 90s, like Watkins Johnson, Avantek, Anzac, RHG disappeared, leaving fewer suppliers in the RF space than we have seen in a long time. As this evolution takes place, there is an undercurrent in our industry—and a fear for some—that we are moving to a commoditized market; that soon, one product will be interchangeable with the next and that the applications engineer will be replaced by an online widget. Designing in a part may eventually be as simple as picking a part number out of a catalog, plugging it in and bingo! It works. In this future, you do not have to think anymore.
And if that is the direction we are headed, how will we, as an industry, define value? Is value something different now than it was five, 10 or even 50 years ago? If it is not a function of performance, and we define it solely in terms of price and delivery time, is the RF market any different from digital markets, where repeatable performance and interchangeability are givens? These are questions on many people’s minds, and I would like to offer my perspective on what value means in the RF and microwave industry today.
COTTAGE INDUSTRY TO CONSUMER MARKET
I started working as a junior RF engineer in 1957, about 60 years ago. At that time, the RF market was a cottage industry. In the post-World War II, pre-Vietnam era, the military market was the main driver, in terms of demand for quantity and consistency of products. RF applications were really limited to military communications, radar, broadcast—and that was about it. There were a few large OEMs like GE, RCA, Westinghouse; then, there was a fringe of smaller, specialized companies like Airborne Instrument Labs, Sperry Gyroscope, Cardion and Wheeler Labs.
At that time, the component-level supply base was a cadre of tiny companies mostly garage shops.They were founder/owner companies established around one product or maybe a small product line in a few cases. They all had niche specialties. One person was the owner, the chief designer and the applications engineer, and products evolved through regular, direct communication with customers. These were very tight-knit relationships: customer-supplier teams, where customers worked closely with their preferred suppliers, and suppliers specialized in specific customers’ needs. “Commodity” was not even in the vocabulary. We were inventors, creators, pioneers, even artists, creating innovative solutions to specific customer challenges.
Fast forward 50 years. The markets for RF technology have ballooned. The number of applications has grown from just a few in the post-World-War-II period to the order of hundreds, maybe even thousands today. In 1985, Martin Cooper and Motorola released the world’s first cell phone. That was an inflection point in the growth of the industry. Around that time, Mini-Circuits was supplying Motorola with 200 units a week for their cell phone; today, the weekly volume for cellular handsets is well into the millions of units. The popularity of applications created through cellular, Wi-Fi, eventually IoT and all the consumer RF devices and services those technologies enabled, drove massive demand for volume and pressure on price. In that landscape and in the transition leading up to it, the cottage industry of suppliers was no longer equal to the demand, so the industry had to evolve. Suppliers had to adapt to achieve performance, quality and competitive pricing at the scale these new markets demanded, and most adapted through consolidation.
The surge in demand brought about an evolution in quality standards, in terms of sigma. Quality has always been and remains inseparable from the definition of value: customers expect performance that meets their system requirements with a high degree of repeatability between units and the assurance that parts will not fail through the operating life of the system they are designed into. But as the industry has grown, suppliers have innovated design tools, processing techniques, ESD safeguards, measurement methods and statistical approaches to achieve quality at an astounding level of precision. As a result, the standards for product quality are higher now than they have ever been. At the birth of the industry, 1000 failures per million was considered exceptional, whereas today it is not unusual to have a requirement for 10 failures per million—or less.
Finally, products have evolved from a diverse universe of single-function components to highly integrated, digital-type solutions aiming toward total plug-and-play compatibility, where one part is a form, fit and function drop-in replacement for another part, and where hardware is secondary to the software and firmware that wraps around it. Where, dare I say, the tight-knit, specialized customer-supplier team seems, on the surface, to have diminishing relevance.
Does this new paradigm work? In some ways, it seems hard to deny.
COMMODITIZATION: NEW PARADIGM OR MISGUIDED PERCEPTION?
Today, giant companies like Apple, Samsung and their peers dominate the consumption of RF products. They shape the RF market and the RF supply chain. Because the trend in this volume market is gravitating toward ever more integrated, more repeatable solutions, the popular viewpoint has emerged that the market for RF products is becoming commoditized. With that viewpoint comes a parallel argument that RF application support is unnecessary for a true, fully integrated system-on-a-chip solution. Pick a catalog part, plug it in and it works. Performance is a guarantee. Value, they might say, comes down to competitive price, fast delivery and superior logistics and distribution.
In this new world of highly integrated, super cost-sensitive solutions, a few, very large suppliers are fully dedicated to supporting those high-volume applications. However, while these suppliers are offering fully integrated system-on-chip solutions, the prediction of a true plug-and-play commodity paradigm has yet to be fulfilled. In fact, these suppliers have entire teams of engineers embedded with their customers to help them integrate products, to understand and anticipate customers’ future trajectories and to make sure that their own product development is meeting the demand of those customers a year or two in advance. So, while there is a perception that system-on-chip solutions are virtual commodity items, or they are headed that way, those suppliers still extend heavy resources to maintain close collaboration with their customers at the engineering level.
While most of the headlines in the RF/microwave market are focused on these volume markets, there is still a substantial market for RF solutions that are not supported by these high-volume, application-specific circuits and suppliers. The challenge today is that there are not many suppliers left who provide the breadth of product and application support that these smaller, more specialized customers need.
At Mini-Circuits, we are deeply committed to serving this segment of the market, and despite the consolidation and the ostensible shift toward commoditization, we have found that the paradigm is still very well rooted in a prevalent and powerful need for applications engineering, partnerships with the customer at the technical level and direct involvement in the customer’s design process. The value that the little garage shops provided still exists and is very much warranted. We saw the need for this kind of support years ago, and that is what pushed us to hire more application engineers. Even though our applications engineering team has more than quadrupled in the last five years, we are still finding more demand for engineer-to-engineer application support. That is our validation that the industry still needs and values this kind of technical partnership.
The need for dedicated technical partnership is further validated when you consider the inherent challenges of replacing or second sourcing a component in an existing system architecture. Whether you take a Mini-Circuits mixer or a Skyworks front-end chip, nothing is perfectly fungible. Even though the end products may be commoditized in the consumer mass market, when the latest iPhone comes out, Apple does not say they can buy from either supplier A or supplier B. They make a commitment to one supplier, and they organize their development around that supplier’s solution.
In the RF world, you cannot simply replace a part and expect it to work. That is the reality of the complex, three-dimensional electromagnetic world we live in. Take an example as simple as a capacitor. Replacing a Johansen capacitor with an AVX capacitor in a 10 GHz matching circuit and expecting no change in performance would be naïve. Whether we are talking about the simplest circuit element or the most integrated chipset solution, at 5 GHz or at 50 GHz, parasitics and unexpected results are still important factors in selecting the right component. And because of that, the value of technical collaboration between supplier and customer is undeniable.
VALUE: A CONSTANT IN A CHANGING INDUSTRY
This leads me to reconsider the prediction of a commodity market and the marginalization of the engineer-to-engineer relationship. Even at the most competitive, consumer-driven edge of our market, that’s not what’s really happening, and it’s simplistic to expect that it ever will. Even though the industry may have evolved into two camps of suppliers, one serving the high-volume consumer wireless customers and the other dedicated to the diverse array of smaller, more specialized applications,is value defined differently in these two segments of the market?
Of coursewe need to remain technically competitive and cost competitive and offer competitive lead-times. We need world class product quality and reliability to meet increasingly demanding system requirements. These “commodity elements” are prerequisite to meeting market demand. But in all cases, the ultimate decisions are based upon the communication between engineers at the customer and the supplier. The RF portion of the analog world still requires an intimacy between the design engineer, and the supplier to achieve the expected results and to optimize system performance.
Through the course of industry history, the suppliers that successfully adapted and thrived were those who were able to transition to scale and improve upon the level of quality and engineering support that had led to their initial success. They either adapted through consolidation to serve the biggest customers with focused and intensive engineering support, or they did what Mini-Circuits did and proliferated broad-based application support for many, diverse customers.
Those touch points may be organized differently to best serve the needs of particular customers or customer groups, but the value we’re creating was, is and remains, in its essence, the same. It’s in the close relationship between the supplier and the customer to solve problems and achieve mutual success. At both the mega-volume level and the mini-volume level, it’s the engineer-to-engineer collaboration where the real value lies. Companies that have failed to preserve that value have been lost to history, and those that discount it now will leave a void between themselves and their customers.
There’s no denying the profound transformation the industry has undergone in the last fifty to sixty years. We’ve evolved from a cottage industry to a ubiquitous element in the fabric of almost every society on Earth. The demand for wireless connectivity will continue to grow, the technology will continue to advance at an accelerating rate, and I have no doubt that Mini-Circuits and other RF and microwave suppliers will continue adapting to bring greater value to customers.
But that doesn’t mean the core value proposition has changed. The perceived shift toward commoditization in the RF market is just that: a perception. The RF world is distinct from other parts of the digital world in that customers will always rely on their suppliers to some degree to develop solutions and integrate them to optimize system performance, regardless of how repeatable performance becomes. And suppliers will always look to their customers to guide their own development efforts. The moment we dismiss that collaborative relationship, the customer-supplier team, is the moment we lose sight of the meaning of value. And history has shown how that goes.
As for the future of our industry, although there is a trend toward commoditization at the high-volume, subscriber level, as there needs to be, the opportunities for RF engineers to blaze new paths through creative innovation and collaboration will remain vital to the evolution of the technology and ongoing growth of the industry.
In 1957, we were at the early stage of the commercialization of radio technology. Like artists, we were creating something where before there was nothing, out of little more than our knowledge, experience, and passion, painting the picture of what the industry would eventually become. And while maybe the canvas has changed, I feel the same creative energy and spirit of invention today, creating new solutions for my customers with the tools I have from my education, knowledge and experience, the partnership of my peers in the field, and the passion to keep solving problems and creating value.