Chipset End of Life Notices and the Redesign Clock
A silicon end-of-life notice demands an immediate audit of last-time-buy volumes against redesign lead times to prevent production gaps during recertification.
Net Present Value Analysis
Meaning
Financial valuation technique used to determine the current worth of a series of future cash flows discounted by a specific rate. Conducting a net present value analysis helps a manager decide whether a new product development project will generate more value than it costs. The calculation sums all the expected inflows and outflows after adjusting them for the time value of money.
Cash Flow
Estimates for the project include the initial capital expenditure for tooling, certification, and inventory. Future revenue from product sales is projected over the expected lifecycle of the device.
Discount Rate
Adjusting for risk involves applying a percentage that reflects the company’s cost of capital and the uncertainty of the market. A higher rate reduces the present value of future earnings, making it more difficult for long term projects to appear profitable. This mechanism ensures that the analysis accounts for the fact that a dollar received today is worth more than a dollar received next year.
Investment Decision
Projects with a result greater than zero are generally considered for approval because they are expected to increase the wealth of the company. If two projects compete for the same resources, the one with the higher value is usually selected. This tool provides an objective way to compare the financial impact of different engineering strategies.