Why Scrapping Your Electronic Component Surplus is a Huge Mistake

News and Noteworthy
Business

Canceled Build? Bought too much safety stock during the chip crisis? Unexpected board re-spin? We’ve heard from many buyers on the front lines that were tasked with finding these holy grail parts just a year ago, encouraged to overbuy safety stock, and are now left holding the bag with parts they paid 5x the regular price for that are now available at a multitude of Distis at the “normal” price.

Should these components be scrapped, held, or sold? Holding parts that have diminished demand, increased supply on newer date codes, and hoping they will one day increase in value is not a sound strategy. While scrapping can be a quick solution, selling electronic components with a company that specializes in buying excess electronic components can be even quicker and can offer significant loss offset while still letting you take the tax liability write-off and a host of other advantages that should not be overlooked.

The Tax Consequence

Let’s say a company has $1M cost of surplus electronics they bought last year. Let’s also use a corporate tax rate of 30%.

Option 1:

Throw the parts in the dumpster and write off the entire cost:

$1M loss offsets against $1M of your company’s profit @ 30% tax rate that = $300K in tax liability savings.

Total = $300K you save your company this year.

 

Option 2:

Sell the parts for $250K to an excess buyer:

Company retains $250K cash, offset remaining $750K loss against $750K of your company’s profit @ 30% tax rate = $225K in tax liability savings. $250K cash + $225K

Total = $475K you save your company this year.

 

Option 3: Hold the parts

$1M paid, $0 loss taken. Since the parts are not used they can not be listed as COGS. Your company pays $300K in taxes against profits that could have been offset. The parts remain in a warehouse racking up carrying costs and getting older and less valuable.

 

Time is not on your side: The Quandary of Q4

The timing of selling electronic components can significantly impact returns. Many larger OEMs wait until later in the year to gauge usage, sales, profit levels and then determine in the 4th quarter they need to dump excess, even at huge losses, in order to capture those losses for the current tax year. The earlier in the year that you can move your excess the more likely you will get a higher return.

 

Lower Environmental Impact

Apart from the tax advantages, selling electronic components instead of scrapping them aligns with environmentally conscious practices. E-waste poses significant challenges for the environment, and by selling these components, businesses contribute to their reuse and reduce the overall electronic waste burden.

 

Supply and Demand Dynamics

Spec buyers, who prefer specific components and don’t want to wait until the end of the year, often purchase excess components earlier in the year. That higher demand drives better returns. By selling during this period, businesses can capitalize on the supply and demand dynamics, maximizing their profits.

 

In conclusion, selling electronic components rather than scrapping them offers numerous advantages, with the potential to write off up to 30% of tax liability being the most significant benefit. By avoiding the burden of holding excess stock and strategically timing the sales to align with market dynamics, businesses can make the most of their investments. Additionally, taking into account future plans and restrictions can help make informed decisions regarding the best time to sell components. Embracing this approach not only benefits the company’s bottom line but also contributes to sustainable and responsible electronic waste management. So, before you think of scrapping those electronic components, consider the tax advantages and the broader implications of selling them wisely.