Electronification’s Impact On Medical Device Manufacturers

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By: Beroe Inc

calender29 Jul 2019

electronifications-impact-on-medical-devices-manufacturers

By Mathini Ilancheran, Principal Analyst, and Sriman Dakshya Das, Research Manager, Beroe Inc.

With the demand for electronic components rising by 20 percent over the last year, buyers have been facing shortages, a crunch in their lead times, and increased prices. This demand has largely been driven by the automotive, defense, aerospace, and industrial manufacturing industries. These segment buyers compete with major consumer electronics manufacturers for components. This ever-growing demand could create industry-wide supply challenges such as price volatility, counterfeiting, relabeling, selling out-of-date parts, and double- or triple-booking orders.1,2

These circumstances result in the need for buyers to develop the right sourcing strategy to solve the problems of lead time and price surge. While buyers search for new supply sources, suppliers search for new sources of raw materials and production methods.3 This article discusses how the electronics industry is segmented, and examines the intensity of electronics shortages in the medical device industry.

Global Electronic Components Market

The global electronic component market was valued at $562.2 billion in 2017, with an annual growth of 12.6 percent over 2016. The largest market share is held by semiconductors—at 70 percent and with a $393.3B market value—followed by electromechanical components and circuit boards with a 11 percent share each. After these are the passive components at 7 percent. Figs. 1 and 2 below depict the market growth and share, respectively, by the type of component.4

global-electronic-components-market

This market is driven mainly by the automotive and consumer segments, with the major trend of “miniaturization” pursued by every manufacturer. Medical electronics fall within the consumer segment, and will eventually witness growth among the manufacturers, making devices smaller and more flexible for minimizing patient trauma, enabling fewer/shorter hospital stays, and facilitating quicker patient discharge.5

Electronics Use In Medical Devices

The global medtech market is currently valued at approximately $425B, with 41 percent of the market comprising electronics and the rest (59 percent) being materials; hence, the medical electronics market opportunity is at an estimated $170B at present. Currently, most electronics have penetrated the class-II medical device market, which comprises medical tests and scans within radiology, as well as other chemical testing and laboratory equipment.

Class-III medical electronics consist of devices that are inserted into the human body.6 Electronics such as batteries and capacitors are expected to have significant value within the medical bionics implant market, being valued at $17.82B as of 2018. Bionic implants are electronic systems that function like living parts (i.e., artificial organs). Some popular medical bionics in production or development include the artificial kidney, bio-lung, and the artificial pancreas. The growing geriatric population is driving technology advancements within the bionic implants space, hence driving the need for medical electronics within the class-III device segment.7 Fig. 3 depicts the medical electronics market’s value and growth:8

estimates-of-global-medical-electronics-market

In terms of application, therapeutic equipment holds the largest market share at ~50 percent. In this segment, respiratory care devices have a large presence, followed by cardioverters such as defibrillators, neurostimulation devices, and pacemakers. Fig. 4 below depicts the market value of medical electronics by application.9           


medical-electronics-market-value-by-application

Impact Of Electronic Component Supply On The Medical Device Industry

According to a survey conducted by iNEMI, passive electronic components, including circuit boards, represent the largest segment of electronic components used in medtech,  with 42 percent utilization. Semiconductors and sensors at 26 percent utilization, and micro-electrical mechanical systems (MEMS) at 8 percent usage complete the top three.10 Resistors and other passive components will boast high reliability in terms of contact, image, and analysis (Fig. 5).11

Passive Components Reliability in Medical Device

Areas of Use

Definition

Examples

Contact

Devices with electrical connection to the body

Defibrillation energy pulses, detection of biologically generated signals for ECG, EEG, Plethysmographic monitoring, etc.

Image

Devices in the radiology space that have specific demand based on use

MRI, X-ray, Ultrasound, etc.

Analysis

Laboratory equipment for lab testing

IVD, Lab instruments, etc.

Fig 5
The iNEMI survey also identified the components listed in Fig. 6 as critical components, as well as components that are more problematic to procure.10, 12, 13, 14, 15, 16, 17, 18

Critical Medical Electronic Components

Component

Comments

Tantalum capacitors

Identified as the most critical passive component due to its self-healing capability, and the ability to pack the highest capacitance values into the smallest cases.

Connectors

Widely used, with an estimated market value of $1.63B in 2016. Innovations in the form of smart textile technology, stretchy resin circuits, and wired bandage are being introduced.

Feedthroughs

Important component in implantable ME devices. Miniaturized feedthrough for endoscopy and innovative ceramic-to-metal seal assembly technology is being observed.

Analog and mixed-signal ICs/ Semiconductors

Key implantable medical device component in therapy for pain management, epilepsy, etc. The integrated circuits are programmed to deliver drugs effectively in a schedule for better treatment.

Flex circuits

Used widely to optimize space in tightly packaged medical devices with lightweight circuitry. Insulin pumps, wearables, portable defibrillators, etc., use such circuits.

Fig 6

Among passive electronic components, multilayer ceramic chip capacitor (MLCC) shortages are prevalent due to limited capacity expansion from suppliers. This has created a higher-margin ceramic business due to the lack of the ability to stack ceramic layers.19 Connectors of certain components—such as capacitors, MOSFET, diodes, etc.— have been scarce with high lead times, causing a supply-demand imbalance.20 A shortage of semiconductor materials is expected by 2019, due in part to the expansion of production capacity among suppliers such as Samsung Electronics, SK Hynix, etc.21 Furthermore, suppliers of IC packaging are facing high- to full-production capacity volumes while operating under a 7-percent increase in IC packaging demand, rather than the anticipated 3 percent.22

Other components, such as resistors, also experienced shortages during the third quarter of 2017 in North America, with most components being sourced from Japan and Europe. The regional suppliers in those areas were unable to expand, causing the shortage. In the fourth quarter of 2017, the Taiwanese market also witnessed high prices and halting of operations. If the shortage persists, it will impact device manufacturers likely in the form of more surge pricing.23

Conclusion – Partnering Strategy

As the first step, it is important for device manufacturers to assess the supply market and identify suppliers based on their internal KPIs. Additionally, there must be an internal analysis on which components are critical. Finally, partnerships should not be restricted to only established players, but should also move down the supply base from tier-I players to the tier-2 and tier-3 suppliers who may be smaller in size but are specialists.

Furthermore, sourcing from the emerging markets of China, Thailand, Malaysia, India, and the Czech Republic could be seen as an opportunity. However, it must be noted that in other industries, these strategies are already being utilized with shortages still prevailing.19

Currently, the medical electronic supply market is highly fragmented, with over 200 suppliers of specific device components or multiple component supply. This favors device manufacturers, granting them high negotiation power during the supplier selection process. This is the right time for medical device manufacturers to act on this shortage, and to plan an alternative strategy for procuring materials to avoid future price surges.

 

References

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[10]     iNEMI, “Component Specifications for Medical Products,” International Electronics Manufacturing Initiative, USA, 2017.
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[19]     . D. M. Zogbi, “MLCC Shortages Are Creating Challenges In Multiple End-Markets in 2018,” TTI Inc, February 2018. [Online]. Available: https://www.ttiinc.com/content/ttiinc/en/resources/marketeye/categories/passives/me-zogbi-20180302.html. [Accessed September 2018].
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