Legislation Impact on the EMS Industry

1. Legislation Impact on the EMS Industry

2. Agenda • Legislation Evolution • Key Focal Points • Challenges • Asset Management • Supply Chain • Manufacturing Capacity • Exemptions • Due Diligence Considerations • Engineering Concerns • Cost • Key Actions • OEM • Supply Base • EMS Partners • WEEE • Summary

3. RoHS and WEEE Legislation • China • Has a draft in place which is projected to be put into law by the end of calendar year 2006 • USA – Maine • Has put a WEEE process into law • Manufacturers of computer monitors and televisions only • USA – California • Projected to put RoHS into place in the next 12 to 24 months • Currently has a WEEE law (SB20) • USA – Maryland • Has a WEEE law in place: Beginning January 1, 2006, the pilot program requires computer manufacturers to register with the state of Maryland before they are allowed to sell new computers in the state. • Japan has been removing lead from EEE since 1998 • Japan – WEEE Laws - Established June 2000/2001 • Use of recyclable resources and reusable parts • Design for product longevity • Design for disassembly • Home Appliance Recycling law Europe is the prime focus today but many other countries are following suit.

4. Geographic Evolution

5. Legislation Focus • Why is focus on compliance critical? • Penalties and fines are planned for those corporations and individuals that do not comply. • An EMS firm has to protect its customer base and itself. • A customer subjected to “stop ships” will drive mutually unsatisfactory distribution efforts. • The “Sony Playstation event” • An EMS provider is exceptionally well-positioned to assist the customer in compliance. • The EMS provider resides in the “center of the supply chain.” • Compliance-related processes must be put in place that demonstrate due diligence. • Customer base • EMS organization • Supply base

6. Challenges and Opportunities • Legislation volatility • Geographic variability • Implementation timing/strategies • Interpretation • Supply chain readiness • Data acquisition • Component availability • Customer direction • Exemption uncertainty • Component availability • Product design capability • Resource availability • Capacity balancing • Business opportunities • Component alignment/design rationalization • First out-of-the-gate

7. Challenges – Asset Management • Risk • Supply transition • Drives duplicity • Error potential is significant • Excess and obsolete inventory a concern • Customer relationship • Cost • Mitigation strategy • Intimate customer coupling ASAP • Transition timing • EOL strategy • Portfolio attributes • Automation of information database • Spreadsheets cannot do the job • Source real-time legislative insight Act NOW

8. Challenges – Supply Chain • Areas of focus • Some suppliers are not changing part numbers • Cost • Integrity of supply • Mitigation strategy • Customers • Understand strategies today • Drive release of RoHS-compliant BOMs • Need to drive customers to release RoHS-compliant BOM/AVLs with enough time to drive suppliers • Product redesign lengthy alternative • Materials management • Prepare transitional plans and determine segregation strategy • Suppliers • Understand capability NOW

9. Challenges – Manufacturing Capacity • Capacity constraints during the 2006 transition year will be challenging • Lead-free manufacturing • SMT and T/H equipment deployment • Expected lead time of up to six (6) months • Hex-chrome free manufacturing • Plating lines retrofit • Surge of demand for both RoHS-compliant and non-compliant products considering current limited visibility for demand • Unknown process or technology-related capacity constraint issues • Line down • Increase in set-up time • New technical issues • The tin whiskering debate • Capital equipment lead time • Demand mix volatility

10. Challenges – RoHS Exemption Considerations • Component availability • Component availability – Most vendors have indicated there will be a short overlap of lead-based and lead-free components before switching to lead-free only. • We do not see this as a major issue for most components. • BGAs • All lead-free BGAs are using a SAC alloy ball [Tin(Sn)-Silver(Ag)-Copper(Cu) • BGAs cannot use a mixed process – lead-free BGAs in a lead-free process and lead-based BGAs in a lead-based process only. • Some new BGAs are being released in lead-free only packages. • Can become a bottleneck to maintaining the exemption. • Many companies are choosing not to use their exemptions. Why? • Component reasons – key components no longer available in a leaded format. • Market strategy – customers want to be viewed as a “green company.” • Many are unwilling to qualify products twice, first in a lead-free assembly stage, and then subsequently in the lead-free assembly stage, plus lead-free components.

11. Due Diligence Considerations • Documentation from the Supply Base • Certification to ensure constituent substances • Upstream considerations • Analysis and verification • Supply base integrity assessment • Customer Direction • Documented direction (business as usual) • ECN = Fundamental basis of change control • Customer variability • Geographic dependencies • Divisional dependencies • Portfolio centric • EMS Certification • Downstream customer requirements • Verification procedures • Integrity of full cycle due diligence • Legislation Evolution • Geographic centric (WEEE) • Regional dependencies

12. Engineering: Why Do We Care About Tin Whiskers Growth? These whiskers can become large enough to short across two lands and can carry sufficient current to cause equipment malfunction.

13. Engineering: Process Control Quick Test: Which BGA is lead-free? The inside structure of the solder joints

14. Lead-Free Solder Joints BGA BGA BGA PTH

15. Cost Considerations • Equipment • 75% of reflow ovens, 100% wave soldering equipment, over 65% of rework equipment need to be replaced • Estimated cost of equipment, support software and hardware upgrade and replacement can be as high as $4M/manufacturing site • Deployment of control instruments and tools for hazardous material detection and monitoring will require sizable investment (as high as $100K per site) • Manufacturing Process Qualification • Manufacturing capabilities Gap Analysis including equipment, process, material and skill • Test vehicle design • Process development, validation and audit • Manufacturing system deployment, verification and audit • Skill curriculum development, training and certification • Qualification run, result analysis and reporting • Certification • Average cost of qualification per site is about $350K

16. Cost • Compliance is not free • Industry will incur costs complying with legislation • Supply base • Incremental effort expended on conversion • Manufacturers will see increased costs • Transitional incremental resource allocation • Training • Process development/upgrades • Capital • Engineering resource allocation • Documentation software and programming • Incremental audit and reporting activity • Mitigation strategy • Work with suppliers and customers NOW to create transition plans • Optimize use of exemptions • Product or geographic-based

17. Key Actions: OEM • Assign the resources • Empower the resources • Strategy and planning • Are you going to be compliant? • If so, how? • Will you exercise your exemptions? • Build two versions of your products? • Determine outsourcing partner • AVL alignment • Product design alignment • Navigation of the choppy waters • Supplier selection – RoHS-capable • Qualify new components/suppliers • Determine and implement audit strategy • Closely follow legislation evolution • Start NOW

18. Key Actions: Supply Base • RoHS-complaint products in production by Q2-05 • Continued availability of pre-RoHS parts • Full traceability of compliant components • Component part number (MPN) changes • Component and packaging identification per JESD97 • Warranted compatibility of pre-RoHS and RoHS-compliant components • Quality and reliability equal to or better than pre-RoHS • Supplier process integrity to prevent contamination • “Certificates of RoHS Compliance” with each product shipment • Continued communication regarding: • RoHS-compliant part number (P/N) alternatives • Supplier roadmaps, schedules and sample availability • Product transition notifications (ECN/PCN)

19. Key Actions: EMS Provider • The EMS supplier will play a different role to every customer. • The EMS role can either be the Brain, the Brawn, the Voice to the Supplier or a complete Turnkey Approach. • Sanmina-SCI Green Services • Products and Components • Viking memory modules • Optical modules • Cables • PCB Fab • Backplanes • Newisys products • Enclosures • Manufacturing • Lead-free Soldering • Dual-processing/inventory • Process qualification • Planning • RoHS Planning • WEEE Planning • End-of-Life Planning • Component Engineering • BOM Analysis • Supplier Selection RoHS Turnkey! • Design • Design for RoHS • Design for WEEE • Design Assessment and Cost Reduction • Marking and Documentation • Product Qualification • Reverse Logistics • WEEE Processing • Take Back and Analysis • Repair and Refurbish • Disassembly and Tear Down • Recycling

20. Impact of WEEE • Recycling efforts to be demonstrated • Aug 13, 2005 • Jan 1, 2006 • WEEE affects the “producer” • The product brander • The importer/exporter of record • The distributor • The manufacturer in Europe • Requirements • Label products advising WEEE recycling capable • Demonstrate capability to recycle 75% by weight of EOL product

21. Summary • RoHS / WEEE and variants are here to stay worldwide • RoHS compliance is not a mathematically taxing issue • Make a product out of compliant components • Ensure the assembly process is compliant • Be able to prove the above • WEEE will be challenging for the industry • Partner with a trusted organization • Legislation tomorrow will not be what it is today • Monitor legislative needs in real time • Assign the resources • Do it NOW

22. Remember …

23. Thank You