I am now sat in San Antonio airport awaiting my flight back the the UK after the Freescale Technology Forum (FTF).  I haven't attended the event for the last couple of years, so it was interesting for me to compare the way Freescale presented itself this week to the Freescale that I remembered being presented in the past.  Here are a few of my personal thoughts and impressions:

1. A more rounded focus.  At previous FTFs that I haved attended, I have received the impression that Freescale was a processor company with a few other bits and pieces.  The overall impression this year was, to me, more rounded, with the analog side of Freescale's product portfolio getting a much more prominent billing.  The tie-up with Fuji for IGBTs was also mentioned multiple times across a number of briefings with different executives.  I saw a shift towards presenting solutions rather than products.
2. Renewed focus on market share.  Freescale was the #1 automotive semiconductor vendor.  Our semiconductor vendor market share report gave them a leading 10.3% share in calendar year 2007.  In 2011 that had fallen to 7.9% - behind not only Renesas, but also Infineon and ST.  In some of my previous discussions on this topic with Freescale, the conversation seemed to gravitate towards the reasons why: currency effects, the travails of large OEM customers, some gaps in product portfolio etc.  This time around there seemed a greater willingness to engage in what they were going to do about it.  There's a real hunger to be technology leaders, and a stated willingness to look at more deals like the Fuji one where they make sense.
3. Optimism about Japan.  I kept hearing, in many cases unbidden, a sense that Freescale was hoping for big things in Japan.  One stated reason was that they had received feedback from some customers that Renesas was in some senses now too big and too dominant - and there was thus an increased willingess to look beyond traditional partners.
4. SafeAssure everywhere.  Freescale's efforts in the area of functional safety and ISO 26262 were very prominent.  I was interested when I was corrected for referring to Safe Assure as a "brand" - with the Freescale staff member insisting it was instead a "program".  Semantics maybe - but he was very keen to get across his message that there was real substance behind the logo, that it was far more than marketing.

It's really too soon to gauge any impact that new CEO Gregg Lowe has had: he's only been in the job a matter of weeks.  However, the focus on market share came right from him, right from the top.  We'll see!

The North American International Auto Show was opened in Detroit on January 9th, 2012.  In comparison to earlier shows, Detroit revealed greater optimism in the automotive industry, following the crippling recession of 2008-2009.  LMC Automotive (formerly JD Power Automotive Forecasting) released its Q4 2011 sales forecast, showing US light vehicle sales rebounding for 2010 and 2011.  However, with the arrival of Volkswagen at Chattanooga, Tennessee, and the growth of Hyundai in the US, such as the Elantra winning the 2012 North American Car of the Year Award, the Detroit-based auto makers face stiffer competition to regain their market shares in their home markets. 

Compact Luxury – The New Battleground
While light truck sales have recovered, the North American market is seeing a particularly faster growth in compact models.  This will result in higher production volumes for them.  According to LMC Automotive, the C-Segment will see the largest unit increase in production from 2011 to 2018, followed by the D-Segment, while the A- and B-Segments will see fastest percentage rise.

• The Show’s top launches were the Cadillac ATS sedan, the Dodge Dart sedan and the Buick Encore compact crossover. 

Not only do the above models come from the compact segments, two of them come from luxury brands.  As many North American consumers downsize, in order to lower their fuel consumption, they still demand a high level of comfort and convenience in their future vehicle purchases – and with this, electronics demand in the North American market will continue to grow.

• The Cadillac ATS aims to compete against more successful German branded sedans, in particular the BMW 3-Series.

Fuel Economy
Growing demand for fuel economy will also result in the adoption of direct injected gasoline engines across the industry, as on the Buick Encore and the Cadillac ATS.  The Dodge Dart, however, will come equipped with the new Tigershark gasoline engine, developed with FIAT’s MultiAir exhaust gas recirculation (EGR) and variable valve timing (VVT) technology, although MultiAir is expected to be deployed on gasoline direct injected engines in the future. 

Ford has made major strides in electrifying the powertrain with the announcement of its roll-out of stop-start systems, starting with the 2013 Ford Fusion.  Ford’s common platforms will also enable its customers to opt for electric, hybrid and plug-in hybrid versions of various models, such as the Ford Focus compact and C-MAX compact minivan.  The GM eAssist mild hybrid system has already been offered on the 2012 Chevrolet Malibu, so perhaps the Buick Encore will follow suit? 

And there may be the possibility that Honda and Toyota may assemble hybrid models in the US – following the unveiling of the Acura NSX sports car equipped with new all-wheel drive hybrid powertrain technology, the auto maker announced that development and future production will occur at its Marysville, Ohio, facility.  The Acura ILX compact sedan also featured a hybrid concept.

• Should tensions in the Arabian Gulf escalate, then demand for hybrids will rise rapidly in the short term.  However, auto makers must bear in mind the revisions to the CAFE mandate, such as proposals by the Obama Administration to raise the level to 54.5 mpg (4.3 l/100 km) by 2025, a level that will certainly require more powertrains to be electrified in the long term, especially if the model segment mix remains unchanged.  An an example of making hybrids more affordable for wider consumer adoption is the Toyota Prius C compact ('Aqua' in Japan).

Comfort and Convenience
Despite their size, the new or recently-launched compact models have many features that would only be offered to larger segments.  Examples of these luxury features include passive keyless entry and start systems (PKE), dual-zone automatic HVAC (heating-ventilation-air conditioning) systems as standard, electric parking brakes (EPB), RLT (rain-light-tunnel) sensing for automated lights and windshield wipers and electrically-adjustable, heated and ventilated seats. 

• Examples of compact models with PKE that are assembled (or will be assembled) in North America include the Acura ILX, the Cadillac ATS, the Chevrolet Cruze, the Dodge Dart, the Hyundai Elantra and the Nissan Tiida.

Infotainment
Consumer demand for connectable systems for smartphones and the use of the Internet as a gateway to various features has led to the development of new all-encompassing, software-based infotainment systems.  The launches at Detroit are no exception, which will further lead to growing electronics demand for Bluetooth, voice control systems and HMI systems controlled by color displays and touch screens. 

• Examples of new infotainment systems include Cadillac CUE, Chrysler UConnect, Ford SYNC, Hyundai Blue Link and Toyota EnTune.  The Cadillac ATS and Dodge Dart are equipped with large color touch screens.

Safety
As side airbags become mandated in North America, the focus for safety applications in new models has been advanced driver assistance systems (ADAS). 

Blind spot detection (BSD) and rear cross traffic assist (RCTA) have been key additions in the North American market, as consumers there tend to drive into perpendicular parking spaces and need assistance when backing out of them – the new Cadillac ATS and Dodge Dart will offer radar-based systems. 

Front windshield camera-based systems offer greater value-for-money, offering both distance warning and lane departure warning (LDWS) from the same module – the Cadillac ATS and the Buick Encore are likely to offer the same Magna-supplied system, as already being offered on some GM crossovers. 

Other features making a greater appearance in North America will be adaptive front-lighting systems (AFS) and high intensity discharge (HID) headlamps, as well as head-up displays, as on the Cadillac ATS.  In line with the Kids & Cars mandate, the HMI displays enable the Cadillac ATS and the Dodge Dart to play back park assist cameras.

Implications
According to the latest (January 2012) edition of Strategy Analytics’ Automotive Electronics System Demand Forecast (2009 to 2018), North American demand for the above applications will grow the fastest, mirroring the trends seen at the Detroit Show.

• Among the fastest growing applications were Collision Warning (+26.9 percent CAAGR by $M value), Passive Keyless Entry (+15.8 percent) and Engine Control (+14.9 percent).

Despite vehicle downsizing, demand for automotive electronics in the North American industry remains strong.

The Automotive Electronics System Demand Forecast 2009 to 2018 – January 2012 Update, can be downloaded at: http://www.strategyanalytics.com/default.aspx?mod=reportabstractviewer&a0=6985.

Updates on the following databases will be published in February / March 2012:
- ADAS Supply & Fitment
- Advanced Entry and Start System Supply and Fitment
- EV/HEV Technologies Supply & Fitment
- Hybrid Technologies Legislation/Support

Raw Material Threat To Semiconductors – Resulting In Disruption To Suppliers and OEMs

The overall impact of the earthquake and tsunami is yet to be played out for Japan.  What is clear is there is great uncertainty regarding the full impact on the automotive electronics supply chain and potential disruption for vehicle OEM production.  Damage to lower tier supplier facilities, particularly to the semiconductor and suppliers to the semiconductor industry, varies considerably and are causing knock-on effects that will affect upper tiers and OEMs on a wider scale.  Even undamaged facilities are being impacted by rolling electricity blackouts and some water shortages.

• Immediate damage to operations has lasted for two weeks since the disaster struck (by March 25th), mainly confined to the affected Tohoku region.  This is to ensure safety inspections are carried out following a major earthquake.  Limited operations have now resumed in many facilities.  Certain upper tier vendors have also transferred some production to areas unaffected by the disaster, such as in the west of Japan.
• Full production is likely to resume four weeks or one month after the disaster struck (by April 11th), although facilities that have suffered direct damage may be closed for longer, perhaps for another two or three months.  Aftershocks in Tohoku have prevented the reopening of several plants. 
• Even when production operations resume, the immediate challenge is the lack of a continuous supply of electricity, gas and water

• Fujitsu’s wafer fabs have been idled and will not proceed to full production capacity due to a lack of water and electricity, perhaps three or four weeks later.  The facilities that have restarted production in other companies have had to operate with limited lighting to conserve power.
• Furthermore, restrictions on fuel supply and damage to transport infrastructure will mean the difficulty of transporting components, systems and finished vehicles – although Mitsubishi Motors can assemble vehicles, it is having difficulty transporting them to customers because of damaged roads, resulting in a further shut down. 
• The plants that have received direct damage from the disaster include a Toyota plant supplying batteries for electric and hybrid vehicles, causing delay to launches of new hybrid models; and the Nissan engine assembly plant in Iwaki – possible alternative supplies for Japanese vehicle assembly plants could be sourced from Decherd, Tennessee, USA. 
• Among the worst affected Tier 1 vendors include Alpine and Yazaki, where one facility remains evacuated being located close to the Fukushima power station, and Hitachi Automotive. 

However, particular concerns in the potential lack of raw materials reaching the semiconductor vendors will have a longer effect on the automotive supply chain.

• Nearly all of the world’s supply of BT (bismaleimide triazine) resin, an epoxy resin used in the packaging of some chips, comes from two plants located in Fukushima and owned by Mitsubishi Gas Chemical.  These were directly damaged by the disaster and could take three months to repair and bring back into service.  Qualcomm, meanwhile, is using its buffer stock and is making adjustments to its near-term material mix as a result.
• Hitachi Chemical also supplies 50 percent of the world’s ACF (anisotropic conductive adhesive), used in panel module driver ICs and silicon wafers, according to the China Times.
• New supplies of copper-clad laminate, which is needed in the production of printed circuit boards, have been delayed following disruption in two chemical supply companies: Mitsubishi Gas Chemical and Hitachi Kasei Polymer.  These suppliers amount to 70 percent of the world’s supply of the material. 
• Silicon wafers supply has also been disrupted. Two major plants, Shin-Etsu Chemical's Shirakawa and MEMC Electronic Materials’ Utsunomiya facilities, have stopped production. These plants reportedly accounted for 25 per cent of the global supply of silicon wafers.

A raw material shortage will restrict the production of semiconductor components and delay assembly of systems, all the way to vehicle assembly, no matter where these are assembled. 

• For example, disruption in the supply of electronic components has delayed the assembly of diesel engines at PSA Peugeot Citroën in France.
• General Motors has also blamed the shortage of parts from Japan that led to the suspension of engine assembly operations at Tonawanda, New York, and of vehicle assembly operations at Shreveport, Louisiana. 
• GM has halted or slowed production of some model due to shortages of Mass Air Flow (MAF) sensors supplied by Hitachi Automotive.
• Overtime and other shifts have been cut at other assembly plants.  For example, the supply of some infotainment systems could bring disruption to some OEMs assembling outside of Japan.
• Should problems persist with the semiconductor supply chain, knock-on disruption to OEMs may worsen by early- or mid-April, when inventories run dry.
• Leading automotive semiconductor vendor Renesas has been badly affected and is issuing regular updates on progress on restarting its worst affected wafer fabs.

A further impact will be on Japanese OEMs that have a large proportion of exports sold in North America, especially with models assembled exclusively in Japan.

• The absence of Acura, Infiniti and Lexus-branded models will enable rivals to increase their market share in profitable luxury segments.
• Volume sales of compact models, such as the Honda Fit and Scion models, will also impact on sales turnover.  By the end of March, lost car production could amount to 450,000 units in Japan and 10,000 units overseas.

The vulnerability in the electronic supply chain may bring about the substitution of raw materials or the localization of raw material production to different regional markets (away to Europe and North America).  And flexibility may also be required from the lower tiers, to bring about contingency plans to their production capabilities.

The situation at suppliers can be expected to remain fluid for weeks to come with perhaps some acute shortages coming into sharper focus.  Although this is an exceptional event, vehicle OEMs and their tier suppliers are likely to review future supply policies in light of its impact on their business.