The deadline for compliance with the European Union’s laws on hazardous substances in consumer goods came and went on July 1 without much fanfare and little news on whether major handset vendors struggled to meet the requirements.
Two tidbits surfaced, however, that shed some light on the topic.
Palm Inc. announced that it would stop shipping its Treo 650 model to Europe beginning June 30 because the model is not compliant with the EU’s Restrictions on Hazardous Substances law. The company explained that the smart phone model was too late in its life cycle to justify re-engineering it to meet the ROHS and that a successor model that is ROHS-compliant would ship soon to replace it.
For some time, Nokia Corp. has quietly let it be known that it not only meets the EU regulations, it will meet the relatively stringent regulations in all its products worldwide-a potential public-relations coup that nonetheless reflects foresight, corporate responsibility and a unified approach to manufacturing that is efficient from a financial standpoint.
Palm’s decision clearly focused only on the specific lifecycle issue of its Treo 650 smart-phone model.
“Palm’s rationale makes perfect sense,” said Avi Greengart, analyst with Current Analysis. “Let’s call it a `hiccup.’ The 650 was going away anyway and the 700 should be out soon.”
The hiccup, however, did get investors’ attention because Palm had just struck a deal on June 8-which it trumpeted with a press release-with U.K. carrier O2 plc to distribute the Treo 650. It already has a similar deal with Euro-carrier Orange plc. Conceivably, those carriers might see a gap in supply between the last Treo 650 to go out the door and when its successor model, the Treo 700, arrives. Unfortunately, this speculation comes at a time when Palm has placed emphasis on expanding its market geographically, specifically in Europe. The vendor got hammered on its stock price on June 29 for forecasting a weak quarter to come as it announced fiscal fourth quarter earnings and explained its rationale in the case of the Treo 650.
Palm generated $1.6 billion in revenue in the past fiscal year ending in June, up 24 percent from the prior year. The company attributed $1 billion of that revenue to its family of Treo smart phones, which in turn reflected strength in sales of the Treo 650. Thus investors’ and analysts’ concerns that a hiccup could impact a strategic initiative to expand business in Europe.
Ed Colligan, Palm’s chief executive officer, said on the June 29 conference call that there would be some impact from the Treo 650’s ill-timed withdrawal from Europe, but that that should be considered an anomaly.
“We obviously would hope to get our European product out as fast as we possibly can and we are doing everything we can to do that,” Colligan said.
Greengart said that a more substantive concern about Palm’s overall business is that while its Treo is an attractive, useful device with a solid base of loyal customers, the gathering competition aimed at Research In Motion Ltd.’s BlackBerry product and RIM’s plans for evolving the BlackBerry to include multimedia capabilities might well cause collateral damage to Palm’s sales. Those taking aim at RIM include Nokia and Motorola Inc., the two behemoths of the handset industry.
Environmental laws
Meanwhile, the Palm hiccup drew back the curtain slightly on the issue of meeting environmental regulations that affect the wireless industry. The EU’s ROHS covers cadmium, mercury, hexavalent chromium, polybrominated biphenyls, polybrominated diphenyl ethers and lead. The EU law is now in effect, though it allows exemptions where a company can establish that acceptable materials are simply not available to replace hazardous substances. Further, a disclosure of hazardous substances law is set to go into effect in China on March 1. In China, companies must review the contents of thousands of components and manufacturing techniques-such as lead in solder, ubiquitous in consumer electronic products, now being replaced by tin-and disclose them and their location in the device in the product’s packaging.
Greengart said he has not heard much chatter in the industry over efforts to meet the EU regulations, whether that’s due to Nokia’s well-known leadership position on the issue or because vendors are, indeed, struggling quietly behind the scenes to comply.
The `right’ materials
A conversation with Michael Kirschner, president of Design Chain Associates L.L.C., a privately held firm that advises mostly wireline enterprise server vendors on supply-chain issues and how to meet environmental regulations worldwide, indicates that the “struggling quietly” model may well apply. DCA’s expertise extends to knowledge of the consumer electronics space, where environmental regulations, the bill of materials and manufacturing techniques tend to be similar. The firm has in the past worked for one of Nokia’s component original equipment manufacturers so it is familiar with issues affecting the mobile handset space.
“Our focus is in this niche called `component engineering,”‘ Kirschner said. “It’s all about picking the right components. `Right’ meaning all sorts of attributes: mechanical, thermal, electrical, functional. And also the important procurement attributes: cost, life cycle, status, availability.” As environmental regulations affecting the electronics business were created and put into effect, it made logical sense to treat environmental friendliness as simply another attribute of components, he said.
“We call these `material attributes’ and they are morphing into toxicity and environmental attributes,” Kirschner said.
Kirschner said that in the United States, there’s no uniform federal law governing the toxicity of electronic components and there’s not likely to be one as long as the business-friendly Bush administration and Republican majority in Congress are in power. This has led to a patchwork quilt of state and even city laws governing various aspects of the issue. In California, an ROHS-type law, based on the EU’s regulations, is in effect and supporters are working to have the regulations extend to mobile phones by 2010. Meanwhile, the EU compliance deadline has now passed and companies are looking ahead to China’s hazardous substance disclosure regulations taking effect next year.
OEMs evaluating and migrating their products to ROHS-compliant status must chase each and every component and material used in their products upstream to its source to determine whether it contains a restricted substance. If done efficiently, that can take three to six months and considerable staff time, Kirschner said. Then one has to find workable, cost-effective replacement materials or components to replace the hazardous ones. All this takes place at the front end of the product design and development cycle.
“Fortunately for the mobile-phone industry, product development cycles are relatively short,” Kirschner said. “So legacy products like Palm’s Treo 650, you’re not going to worry about them because Palm already has designed compliant handsets two generations beyond it.”
However, Kirschner said, there are significant issues for vendors in establishing the availability of replacement materials, particularly in semiconductors, where component makers may simply end a product’s life rather than face an unprofitable shift to compliant materials.
The hammer for compliance, beyond fines and possible seizure of goods, lies in the reluctance of companies with strong brands to sully their reputations, Kirschner said. In the case of upcoming laws in China, where enforcement tends to be inconsistent, DCA’s advice is to comply, especially for “non-Chinese entities.”
