SMALL FORM FACTOR FORUM
The Bad, the Good and the Ugly
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We’ve written before to complain, if you will, about how difficult it is to gather investment capital to address the SFF board market. A lack of inventive start-ups to address this market is only part of the problem. Large companies serving commercial (consumer) markets are still not investing in innovative product solutions designed specifically for the SFF industrial market. SFF board and system designers still must utilize hand-me-down components designed for other market segments in embedded systems applications.
With the SFF boards and subsystems market passing the 1 million unit per year shipment level during the last several years, and the dollar volume approaching the $1 billion level, this market deserves more attention. What’s wrong? TTM, which in this case means time-to-money, is the culprit. From the time of first availability of a new SFF board product, a supplier is faced with a long lead time to reach volume shipments. Once an OEM has made a board selection for an embedded system application, the OEM must complete their own development process, including software, enclosures, system integration, testing and documentation—a cycle that can take 12 to 18 months or longer. If certification is required, such as FDA or FAA, the timing can stretch even longer, to three years or more. Not long ago, a medical systems company bought a number of design kits, and placed a large production order seven years later—about a year after the product they had designed in went EOL and component availability dried up. The only way to satisfy their needs was to scour the globe for all remaining components that were available to make these boards.
Once the OEM has introduced their product to the market, that product itself has its own ramp rate to full production volumes. So the bad news from a TTM standpoint is that a total cycle for a new SFF product to reach volume production can easily take three years or more. Not to mention the system OEM who, in the midst of the design process, decides that the proposed product is not competitive, or fails to meet market requirements, and simply drops the whole thing or redesigns with another, newer SFF solution.
The good news is that once in full production, SFF products can stay in volume production for many years. There are SFF products in volume production today that were first shipped in the early 1990s—almost 20 years earlier. This “annuity,” if you will, constitutes the vast bulk of the profits in the SFF board community.
If you are a component supplier to SFF board companies, TTM truly gets ugly. Another development cycle, that of the SFF board company itself, gets tacked on. So component suppliers (processors, peripheral components, memory modules, etc.) get a “design win” from an SFF board company, wait 9-12 months for the board design to complete, ship 25 to 50 units for a first production run, wait for a system OEM to make a design commitment, wait another 12 to 18 months (best case) for the system OEM to complete their product design, sell a few additional units for an initial production run, and then and only then see volume finally start to ramp as the OEM system begins to sell. For a sure-fire winner, SFF component suppliers might wait three years. It might take five or more years for it to become clear that the product missed the boat.
It takes an investor and company management with patience and confidence in their decisions to wait it out and reap the benefits. In our short-term, results-oriented financial environment, there are precious few investors and companies willing to place a bet with a payback that long. Intel, one of the leading component suppliers to this market, hasn’t invested in a new product designed specifically for the SFF board market in almost 20 years (remember the 386SX). Processors designed for tablets and cell phones, with many of the same requirements, continue to be adapted by SFF designers to their specific application requirements. It’s time for big component suppliers who seek a piece of the SFF pie to stop paying lip service to this segment. Get over the short-term performance mentality and establish internal organizations that operate by a different set of financial rules with the freedom to invest for the long term in SFF products. Those who do will reap the benefits 5, 10 or even 15 years down the road.