Thorns on the RoHS

In its first year, RoHS’ regulations have hit some companies harder than others. Tim Kridel speaks to a cross section of the EMEA market to see what the effects have been.

July 1 marks one year since the European Union’s Restriction on Hazardous Substances (RoHS) regulations took effect. The impact so far: RoHS compliance has cost some AV companies a significant amount in revenue and market share, while for others, it’s dismissed as just another cost of doing business.

Here’s an extreme example: An executive at one major integrator, speaking on background, told InAVate that his company has lost €100 million in sales so far. “Some products were not sold any more for Europe, and that is why we lost some sales,” he said.

But other vendors say that they and most of the companies they know of are taking RoHS in stride.

“There’s been very little impact, as far as I can see,” said Graham Burgress, founder and CEO of displayLED, an LED brokerage based in London. “It seems to me that most of the manufacturers have been aware of the RoHS requirements and say that they’re compliant, and there’s no reason to doubt them.”

Flushing the pipeline

RoHS began to impact AV several months before the regulations took effect. One reason is because many vendors and distributors began clearing out inventories of non-compliant displays, cables and other hardware. That purge helped drive down prices.

For example, in an early 2006 report, analyst firm iSuppli predicted that the Western European market would see deepest discounts on LCD displays around May and June, mainly because vendors would be scrambling to clear out the last of their non-compliant gear before the July 1 deadline. That forecast turned out to be correct.

“There was a period when RoHS was coming in when there were Far East manufacturers trying to offload as much equipment as they could at rock-bottom prices because they knew it wasn’t RoHS-compliant,” Burgress said. “That wasn’t in our area, which is why it hasn’t really affected us, but people who were making plasmas and LCDs were struggling to make the transition to compliance.”

Another issue is that even as manufacturers were scrambling to purge inventories, some also were struggling to produce RoHS-compliant products to take their place. One year later, some vendors are still bouncing back.

“We did have to remove certain product lines from our EU sales,” said Steven Mattingly, general manager of TV One Ltd. “This lead to a shortage of the products we could sell in Europe during the months after RoHS came into force. It has taken until now to really get back to the full pre-RoHS product range.”

That situation is common, according to distributors such as Prevost, which serves the Belgian and Dutch markets.

“We have not had product shortages, but some products [are] no longer available, and the successors are not yet all available,” said Walter Geerts, Prevost’s CEO.

Vendors that focus on custom products appear to be less hard hit by RoHS. That’s because they had more flexibility in terms of lining up compliant components.

“We were very careful to select products that we would be selling at the time of transition from people that were declaring compliance,” said displayLED’s Burgress.

Although displays were one type of product where RoHS’ impact was difficult to overlook, the regulations also affected audio equipment.

“It has been hard for some manufacturers to present a RoHs-compliant version of pre-amps and such as successors of their non-RoHS versions,” Geerts said. “This is especially true for products that were developed some time ago, and as manufacturers cannot have a solution for all products, the least popular overall have been discontinued. It seems that some of these products were quite popular in our regions, so that was unfortunate for us.”

That experience also is an example of RoHS impacted the competitive landscape.

“In the time frame between discontinuation and the RoHS-compliant version, we had to help ourselves with products from other manufacturers,” Geerts said. “Luckily this was a minority of cases, and it did not present a real problem to our business.”

New opportunities?

When one manufacturer struggles to keep up with demand – in this case, demand for RoHS-compliant products – it can create opportunities for rivals to step in and grab market share. Some AV companies say that that situation created opportunities for European vendors whose Asian rivals weren’t able to meet demand for compliant products and components.

For example, Burgress knows a couple of U.K.-based vendors that began looking in their own back yard when their existing suppliers couldn’t meet their RoHS-related needs.

“They couldn’t get what they wanted immediately, so they set up a facility in the U.K. to custom manufacture the cables, whereas they probably would have got those out of China, Korea or Taiwan,” Burgress said. “I suppose that’s a good thing because it brings a bit of employment back to the U.K.”

RoHS also has created opportunities for European vendors that sell into the U.S. market, where similar regulations took effect in some states earlier this year. And in areas without RoHS regulations, there’s still growing demand for compliant equipment and components as part of a larger movement toward green products that extends outside of AV.

TV One’s Mattingly said that RoHS has created opportunities for his company, “mainly in the United States and other markets where these types of regulations are not in force. Even though they do not have legislation in these markets, we are getting asked more and more for RoHS-compliant products. It’s a case of the end-user creating the demand for environmental products.”

New rules, new costs

For some vendors, complying with RoHS meant buying new manufacturing equipment. But that didn’t necessarily increase the overhead costs beyond the initial outlay for the new gear.

“We had to replace machinery to comply,” Mattingly said. “However the new machinery was more efficient and has more capacity. So this offset a lot of the cost. We have not passed on any cost to the end user.”

Not all vendors were fortunate enough to be able to absorb RoHS-related costs, according to distributors such as Prevost.

“RoHS has only increased equipment prices of a few manufacturers of ours, and those price increases have been passed on to customers,” Geerts said.

Some vendors were able to absorb costs rather than pass them on by discounting equipment at a slower rate than usual. So depending on the type of product and the situations of the vendors in that market segment, prices in that particular sector could stopped the rapid decline that began a few months before the compliance deadline.

“In this industry, which is seeing prices decline continually, probably what we saw was a period of time where prices didn’t follow the normal trend of declining quite so quickly while the manufacturers absorbed the cost of compliance,” said displayLED’s Burgress.

The cost of compliance is one of the major reasons why not all companies selling into the EU market are providing compliant products.

“There are a lot of non-RoHS compliant products still out there on the market,” Mattingly said. “Some have come in the back door, or a blind eye has been turned to the regulations.”

One company that’s run across non-compliant gear is AV Media, a Czech Republic-based company that sells and leases AV equipment. “We faced this issue twice last year,” said David Lesch, the company’s sales director. “We must be careful when we look for new products that they are RoHS-compatible, particularly very special products from smaller specialized producers.”

The most common way that manufacturers, integrators and distributors verify their suppliers’ compliance is simply to ask for it in writing.

“I would advise AV integrators and vendors to be careful on their sources and ask for Declarations of Compliance from the importer,” Mattingly said.

The catch is that the declaration has to be taken at face value unless the buyer is willing to spend the time and money to independently verify that claim. Few buyers can make a business case for doing those kinds of checks.

“We ask them to make a statement declaring that it’s compliant,” Burgress. “We don’t go to the extent of testing it ourselves. I’m not aware of any legislation that requires you to do that. I’ve never even considered the idea that we’d go get something tested because the practicality of doing that – testing all of the components that make up a screen – would be a huge job.”

Another reason for not trying to verify a compliance declaration is that the chances of getting caught currently are slim.

“I don’t know what the authorities have in mind in terms of checking for compliance,” Burgress said. “I’m not aware of any checking that’s been done on what we’ve installed. I suspect that they’re more interested in things that are going into the consumer market rather than one-off, custom-built products, which is what we do.”

Easier times ahead?

The mixed bag of RoHS’ first year begs a question: What’s in store over the next year or two? The outlook is as mixed as the AV industry’s experiences thus far.

“I think [compliance] will become easier as it is now the norm,” Mattingly said. “We purchase most of our parts and components in the Far East. They take their cue from the U.S. markets, so two years ago if you mentioned RoHS to a supplier, they looked blank. Now they are offering RoHS-compliant products without being asked.”

RoHS also is likely to have less impact on pricing. Or at least that’s what some companies hope.

“I think that over time, more and more parts will be RoHS-compliant, and thus there will no longer be shortages and/or price increases,” said Prevost’s Geerts. “For manufacturers all over the world, Europe is large enough as an economic partner to produce the necessary compliant parts, and thus I think that most parts will become automatically RoHS-compliant, even if it is not demanded for in other parts of the world. It would not seem economically interesting to have different lines for Europe and rest of the world for a manufacturer.”

Article Categories

Most Viewed