NXP product discontinuation process & general information

January 19, 1999

PHILIPS PRODUCT DISCONTINUATION PROCESS
AND GENERAL INFORMATION:

A. Definitions:

Product discontinuation (DN) means: the permanent discontinuation of a Philips Semiconductors' product or end part, part package or part packing type (ie. tape and reel). In North America, customer product discontinuation notices and information request are handled exclusively by the Sunnyvale Contracts Department.
Customer Product Process Change Notices (CPCN) means: a notification of a change in the form, fit, function or manufacturing process of an existing Philips Semiconductors' product that will continue to be manufactured. In North America, all CPCN notices and information requests are handled exclusively by the Narso Quality Department.

B. General:

In keeping with accepted industry practices, Philips Semiconductors periodically may elect to discontinue semiconductor product families, specific base products (die) , end products, product packages, or product packing types. The reasons for discontinuing product manufacturing varies for such reasons as:
1. The product is obsoleted at the end of its natural life cycle.
2. The product no longer meets Philips sales, marketing or revenue requirements.
3. There has been very low customer demand for the product family or for competitive reasons the product will no longer remain viable in the marketplace.
4. Philips elects to close a wafer or manufacturing location.
5. A transfer of the product to a different process or manufacturing plant will require re-engineering of the product in such a way that the original product in its form, specification or application will be different than the part being discontinued.
6. Philips cannot commercially manufacture the product to meet its quality or manufacturing requirements.
7. The end product packaging, packing type is no longer going to be offered, or a third party subcontract manufacturer or licensor is no longer able to support Philips requirements where an alternative product does not otherwise exist.
8. A decision is made to offer only a selected version, or versions of the base die, or a commercial version of a customer selected product will only be offered.
Philips Semiconductors maintains one of the largest product portfolios of any semiconductor manufacturer in the world. Its product lines cover over 45 individual product manufacturing segments (mag codes) encompassing over 40,000 individual products, end part types, or customer selected part types (12nc numbers). With this breadth of products, it is natural that many part types may not be economical to continue to manufacture or to maintain the logistics to support. It is Philips management's goal continue to review and streamline our large product offering to meet product line marketing and financial strategies, as well as to focus on critical new or existing products that support our customers in the global market segments that Philips has targeted for future growth.
Philips recognizes that changes in its worldwide product manufacturing plans and the discontinuation of its products may have a detrimental effect on its customers or distributors. Therefore, an orderly worldwide process must exist to give our customer and distributors routine product discontinuation notices under reasonable conditions to purchase their final life time requirements of manufacturable or available obsoleted products. Keeping in mind the above stated customer and distributor needs, Philips goal is to also complete last time manufacturing and support of discontinued products within a realistic time cycle so that these products: may removed from the product lines; and their associated manufacturing, logistics and financial costs eliminated as soon as possible.
Due to Philips extensive product lines and marketing organizations throughout the world, Philips has elected to have a single worldwide product discontinuation process, policy and customer notification system as follows:
1. Philips Semiconductors worldwide product discontinuation policy number SNW-SQ-651 established the management directive for product discontinuation by all Philips' product groups. It also sets forth the requirements for the worldwide sales regions to give product discontinuation notice and last time buy offers to customers and distributors.
2. Policy number SNW-SQ-651 establishes 2 separate annual product discontinuation cycles year resulting in final customer or distributor DN notices on June 30^th and on December 31^st each year. (DN or DODN cycles).
During each of these notice 2 discontinuation cycles each year:
1. All product group marketing managers (ipmms) review their product portfolios during the initial 4 months of each DN cycle and determine which, if any, products they may elect to discontinue.
2. During the first 4 month time period of each DN cycle, the product groups may solicit sales or customer feedback as to whether certain products targeted for discontinuation should still be retained in their product offering. (early alerts). However, these early alerts are not the final decision to discontinue the products and are not to be considered a firm discontinuation notice to the customers. Rather, they are merely information gathering tools. All Philips official customer product discontinuation notices originate by the DODN RSO Communicators in each of the 4 Regional Sales Organizations (RSOs) throughout the world.
3. By May 1^st and November 1^st of each year, each of the product group ipmms are to submit their final discontinued product listings to the DODN RSO Communicators for official customer discontinuation last time buy notice. The product groups are to provide the RSO communicators this pruned product information in a specific electronic format and within established last time buy policy conditions. In North America, the RSO Communicator is designated as the Sunnyvale Contracts Department.
4. During the 8 weeks from the receipt of all product group notices, the DODN RSO Communicators aggregate all discontinued products into a single DN notice database. A number of verification steps also occur to check for proper codes, part number references and other quality assurance criteria to insure that customers and distributors receive accurate last time buy notices.
5. On June 30^th and December 31^st each year, the DODN RSO Communicator issues the official Philips product discontinuation (DN) notices to all customers and distributors of record in their respective sales regions.
The customer product discontinuation notices include: a DN notice control number, the official notice letter which includes last time buy conditions for the discontinued products, and the listing of the discontinued parts list with applicable coding and other specific ordering information. Some notices also include a special exhibit which clarifies or corrects information on certain previously discontinued products.
Philips standard last time discontinued product ordering and purchase conditions:
1. Last time buy ordering period:
  - multi-source products = 6 months notice is given from the official DN notice date for products that are manufacturable or otherwise available. (*)
  - sole-source products = 9 months notice is given from the official DN notice date for products that are manufacturable or otherwise available. (*)
    
    (*) a longer last time ordering period may apply based upon specific approval of product group marketing in each instance.
  - non-manufacturable or limited availability products are subject to the remaining product inventory, or limited manufacturing conditions set forth in the DN notice. Ordering shall be limited on a first-come/first serve condition until the remaining product capacity or inventory has been sold.
2. Last time delivery period: 12 months time period is given from official DN notice date, unless: another time period is indicated in the DN notice; or the product is limited in availability or is non-manufacturable.
3. Pricing: The pricing for discontinued products shall be:
  - the contract price for unordered quantities of discontinued products set forth in an official agreement between the customer and Philips. After the contracted quantity has been taken by the customer, the discontinued product unit price shall be subject to mutual agreement.
  - the unit price in an existing standalone quote between Philips and the customer shall apply until the quoted product quantity has been ordered by the customer or Philips price quotation expires.
  - the unit pricing for all new standalone quotes for the discontinued products shall be subject to market and customer conditions at the time of Philips quote and subject to the other terms and conditions of the DN notice.
4. Delivery: Discontinued product delivery dates are approximate, subject to the special last time manufacturing and total aggregation of all last time customer orders for the DN part type(s). As such, Philips delivery of a last time buy order is not subject to a firm delivery date. DN orders for discontinued products may not be rescheduled, terminated or rescheduled by the customer for any reason without Philips prior agreement, written consent and payment of full termination charges.
5. Limited Availability Product Allocation: If a discontinued product is limited in availability, Philips shall then allocate remaining capacity in the following priority on a first come-first serve basis:
  - product quantities on existing unfilled orders, or on contracts acknowledged by Philips, are tiered with strategic and sole source customers receiving first call on available product capacity or inventories. Distributors shall receive product support for limited products based upon the term and conditions of their distribution agreements and applicable distribution product policies then in effect.
  - unordered remaining discontinued product quantities on official volume agreements with customers, or unordered quantities in existing valid quotations to the customer or distributor get next available capacity.
  - Any remaining inventory or capacity of the limited availability products shall offered on a first-come/first serve basis until the last products are sold.
6. Limited Discontinued Product Warranty: Philips standard limited product warranty returned material authorization (rma) conditions apply to discontinued products: except that:
  - the warranty period is limited to a maximum of 90 days from the date of delivery of discontinued products, and
  - Philips offers a credit only warranty adjustment to the customer or distributor, unless sufficient Inventory or capacity remains to replace all or a portion of the returned discontinued products Within the DN notice delivery term and applicable last time buy conditions.
  - Except for applicable distribution sales policies, Philips offers no restocking rights customers for discontinued products once they have been delivered.
7. Disclaimer of Damages: Philips accepts "NO" special, incidental or consequential damages whatsoever associated to the discontinued product, the use of discontinued products, or any claimed excess re-procurement or late delivery damage claims associated to customer or distributor discontinued product orders.
Distribution Sales Discontinued Product Orders: Philips distributor sales agreements and special distributor asset management and discontinued product availability conditions shall apply to distributor orders for Philips discontinued products. Narso Distribution Marketing and Sales is responsible for implementing each DN notice with Philips distributors. The distributors are to give notice to, or make information available for, their end customers concerning Philips product discontinuation notices and last time buy conditions.
Additional Product Discontinuation Information: Additional information concerning Philips DN process, our terms and conditions of sale, and special distributor or customer notice practices is available from Philips Contracts Department. Phone: 408-991-2083, fax: 408-991-2004 or email.
This Product Discontinuation Process and Information Web-site will continue to updated with New and additional information including a common questions and answers area during the remainder of 1999.