Written by John C. Lalgee, CEO


Most electronic products contain many intermediate components that are purchased from other manufacturers. Companies producing intermediate components and finished goods often choose to locate near each other so that companies can receive new products more quickly and lower their inventory costs. It also facilitates joint research and development projects that benefit both companies. As a result, several regions of the country have become centers of the electronic products industry. The most prominent of these centers is Silicon Valley, a concentration of integrated circuit, software, and computer firms in California's Santa Clara Valley, near San Jose. However, there are several other centers of the industry throughout the country.

Although some of the companies in this industry are very large, most are relatively small. The tradition of innovation in the industry explains the origins of many small firms. Some companies are involved in design or R&D, whereas others may simply manufacture components, such as computer chips, under contract for others. Often, an engineer or a physicist will have an innovative idea and set up a new company to develop the associated product. Once developed, the company licenses a production company to manufacture the product, which is then sold by the original company. Although electronic products can be quite sophisticated, production methods are often similar, making it possible for a single company to manufacture many different electronic products or components with a relatively small investment. Investors often are willing to put their money behind new companies in this industry because of historically large paybacks.

The electronic product manufacturing industry has many segments. Companies in the industry are generally classified by what they sell.

Semiconductor and other electronic component manufacturers produce integrated circuits, or computer microchips, which power a wide range of electronic products. They also produce other electronic components, such as resistors and capacitors, as well as printed circuit boards. Unlike most of the companies in this industry, these manufacturers start from basic materials such as silicon and copper and produce intermediate products that are only rarely sold directly to consumers. The exceptions to this rule include companies that produce central processing units and memory chips, although even these products are more likely to be pre-installed in a new computer.

The navigational, measuring, electromedical, and control instruments manufacturing segment is a diverse group of companies that produce products mainly for industrial, military, and healthcare use. It also includes some consumer products, such as global positioning system (GPS) devices, as well as clocks and watches. This segment is one of the largest in the industry, mainly because its primary customers are the U.S. Department of Defense and the healthcare industry. Many of the companies in this segment work as government contractors, producing equipment for military purposes. In some cases, this technology has been adapted for consumer use. For example, GPS technology was originally designed for use by the U.S. Navy, but has been developed into a navigation system that individuals can use in their cars. There is also a growing healthcare component of this industry segment. Extensive government funding for research in medical technology has led to a number of important innovations that are being used worldwide in medical care.

The communications equipment manufacturing segment of the industry produces a number of devices that simplify communication between individuals or groups. This segment includes telephones and cellular telephones, as well as equipment used by television and radio stations to transmit information. It should be noted that this does not include computer-related peripherals—such as networking cards or modems—which allow computers to connect to other computers.

Audio and video equipment manufacturing is a relatively small industry in the United States and includes companies who produce consumer electronics. These include televisions, stereo receivers, CD and DVD players, and other such devices. While these devices are widespread in the United States, most of them are produced overseas, making employment in this industry relatively small.

Computer and peripheral manufacturing is made up of companies that make computers and related products, known as peripherals. Most computers are built by a small number of well-known brands, but there are also many small companies that sell their products locally or on the Internet. Computers are made up of components, such as motherboards, central processing units, graphics cards, hard disk drives, and power supplies. Many of these products are purchased from other companies and assembled as part of the computer. As a result, many finished computers are simply the combination of a number of other products.

The rapid pace of innovation in electronics technology creates a constant demand for newer and faster products and applications. This demand puts a greater emphasis on R&D than is typical in most manufacturing operations. Being the first firm to market a new or better product can mean success for both the product and the firm. Even for many relatively commonplace items, R&D continues to result in better, cheaper products with more desirable features. For example, a company that develops a new kind of computer chip to be used in many brands of computers can earn millions of dollars in sales until a competitor is able to improve on that design. Many employees, therefore, are research scientists, engineers, and technicians whose job it is to continually develop and improve products.

Globalization has become a major factor in the electronics manufacturing industry, often making it difficult to distinguish between American and foreign companies. Many U.S. companies are opening plants and development centers overseas and overseas companies are doing the same in the United States. Many products are being designed in one country, manufactured in another, and assembled in a third. The United Sates electronics industry tends to focus on high-end products, such as computers and microchips. Even so, many components of final products manufactured in the United States are produced elsewhere and shipped to a U.S. plant for final assembly.


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