Showing posts tagged 'chip shortage'
20 October 2021
Memory suppliers to benefit from strong demand and supplier shortages
While the downsides to electronic components shortages are well known, business is booming for smaller memory suppliers.
Sales of Samsung DRAM grew 26% in Q2 2021 without meaningful production capacity growth, and as supply-demand imbalances grow, memory suppliers like Samsung, Micron and others are turning to smaller suppliers to fill gaps.
As chip shortages continue, demand grows. Order books get filled off the page, creating longer lead times (up to 40-weeks) and extending standing orders. This is bad news for the end-product manufacturer but great news for suppliers, who see sales rise and bids increase to fuel record turnover and, in some cases, net profits.
The sector as a whole is booming, but no better example of taking the bull by the horns exists than Alliance Memory.
Alliance Memory is a US-based 30-year old DRAM manufacturer, billed as a legacy SRAM supplier and a leading domestic supplier of DRAM and flash memory. The company’s run rate in 2021 is double what it was in 2020.
In an interview with EPS News, Alliance Memory CEO David Bagby explains why: “we went out to customers struggling to get Samsung. Now we have maybe the best representation of DRAM and SRAM product of anybody out there.”
Memory upturn forecast to continue
IC Insights, the foremost authority on memory and chip demand, has predicted a new record high for memory demand in 2022.
Stronger DRAM pricing is expected to lift total memory revenue 23% in 2021 to $155.2 billion. The memory upturn is forecast to continue into 2022 to $180.4 billion, surpassing the all-time high of $163.3 billion set in 2018.
Demand for memory, including DRAM, SRAM and flash, is being driven by economic recovery and the transition to a digital economy. Unlike other technological cycles, the current cycle of digitalisation has weight behind it, fuelled by innovations in data centres, 5G and space networks, AI, robotics and IoT.
Sequentially, the average price of DRAM rose 8% in the first quarter of 2021. Another increase of 18-23% in Q2 sent memory suppliers into a spin. Demand is outstripping supply, creating a perfect storm for continued price increases.
Price increases expected to continue until late 2022
The price of memory is more sensitive to other electronic components because supply is controlled by a few big players. Smaller memory suppliers fill in gaps in supply, but the big guns like Samsung and Micron rule the roost.
When demand outstrips supply at the big guns, prices explode. We’ve seen it several times before, such as the memory price increase of 2018. Prices fell again in 2019, recovered a little in 2020, then soared again this year.
Memory is a commodity and companies are willing to pay big to get a hold of it. Bidding wars are not uncommon and 40-week lead times are normal today.
However, while the memory upturn is predicted to continue into 2022, Gartner says memory prices will dive at the end of the year, predicting that an “oversupply” of memory chips will develop as demand eases and supply increases.
15 September 2021
Chip Shortage causing car manufacturers to cut production levels
A week doesn’t pass without an announcement from a car manufacturer that they are cutting production levels. Idling shifts and even entire factories has become normal for an industry that thrives on maximising output.
Volkswagen, Ford, General Motors, Hyundai and Toyota have cut production levels to prioritise their most lucrative models. In some cases, plants have shut down for weeks at a time to allow supply chains to catch up to one another.
To understand how big this is, a 1-2 week plant shutdown will cost a car manufacturer millions of pounds at the very least. No manufacturer would willingly do this, but the global chip shortage is forcing them to.
Chip shortage in numbers
Just 53,438 cars rolled off assembly lines in the UK in July 2021, making it the lowest output in the month of July since 1956.
In June 2021, data from the Society of Motor Manufacturers and Traders (SMMT) showed that car production was down 52.6% on the same month in 2019, telling us that we’re a long way off reaching pre-pandemic levels.
According to research firm AlixPartners, the chip shortage will collectively cost the auto industry $110 billion in revenue in 2021 - a revised figure and an increase of 81.5% over the same firm’s figures in late January.
More telling figures come from Fitch Ratings, who estimate the chip shortage will cost automakers 5% of production. North America and Europe will be the hardest hit, with Asia and China coming in third and fourth respectively.
What’s happening with chips!?
The automotive sector has been hit harder than any other by the chip shortage due to cancelling orders for chips at the start of the pandemic.
Anticipating a slowdown that would last months, most car markers cancelled orders for chips. Semiconductor manufacturers filled order books with orders from companies making smartphones, laptops and other devices.
When the automotive sector bounced back sooner than expected, semiconductor manufacturers had hardly any capacity to meet demand. This has led to the situation today, where car makers can’t secure the inventory they need.
Now, there are not enough chips, foundries are running at 99% capacity and new foundries take years and billions in investment to set up.
Changing the production line for a chip costs tens of millions and takes months, labour shortages are causing a manpower crisis, and the pandemic is causing short-term factory shutdowns at foundries and fabless plants.
When will the global chip shortage end?
It will take at least five years for the global chip shortage to subside, assuming investment in new foundries begins in 2021/22. New factories are the only the way out of the shortage because demand for chips is only going to increase.
Opinions on when the shortage will end vary from early 2023 to 2025. The last 18 months has tested supply chains and wreaked havoc on production, but the automotive industry is experienced enough to cope with future problems.
When you need to source hard to find electronic components quickly because of allocation, long lead times, obsolescence or quality issues, contact Cyclops Electronics for a fast response to your enquiries and a reliable on time delivery.
07 July 2021
The Global Chip Shortage Has Created a New Problem: Counterfeits
The global chip shortage is officially wreaking havoc.
The world's biggest carmakers, including Toyota and Volkswagen, have had to slow down vehicle production, and Samsung - who make their own chips - has had to delay the launch of several smartphones due to be released in 2021.
These are but a few examples of thousands of cases where the global chip shortage is wreaking havoc with manufacturers.
But that’s not all - the global chip shortage is creating a new problem: counterfeit components.
The issue is simple: chip manufacturers can’t make enough chips which has given counterfeiters a golden opportunity to plug the gap.
A counterfeit part is an unauthorised copy, imitation, substitute, or modification of an original component.
Counterfeit components are illegal and should not be used under any circumstances, but counterfeiters don’t care. They defraud you and hope you don’t notice. And if you do, there is virtually no chance of getting your money back.
With no accountability, counterfeiters are having a field day.
A sophisticated criminal enterprise
The counterfeit electronic components industry is a multi-million pound industry. It has become sophisticated and impossible to shut down.
Criminals are taking advantage of weakened supply chains, inadequate quality control processes and inadequate reporting to flood the market with illegal components. They are praying on weaknesses and desperation to profit.
Counterfeit chips can look like the real thing, but worse still is they can also perform similarly during basic benchmarks and tests. This allows the most sophisticated components to penetrate manufacturing lines.
The risks of using counterfeit components include:
- Financial loss
- Reputational damage
- Loss of customers
- Refunds and regulatory fines
- Bribery from criminals
- Poor and dangerous product performance
How we can help you avoid counterfeits
We provide industry-leading chip testing to catch counterfeit goods. We have ISO 9001:2015 certification and ESD qualified staff. We have several anti-counterfeiting technologies available including a SENTRY machine, die testing and decapsulation testing.
We specialise in the procurement and delivery of electronic components for a wide variety of industries from the world's leading manufacturers.
If you work with us as your electronic components distributor, you can avoid the issue of counterfeit chips and components for good. We have standard anti-counterfeiting policies and all the components we supply have a guarantee.
If you are still exploring your options, here’s some general advice:
- If it is too good to be true, it probably is
- Make sure any guarantee is worth the paper it is printed on
- Look for ISO 9001:2015 certification
- Demand testing prior to all deliveries
- Only work with suppliers who have an anti-counterfeiting policy
- Beware of spoof companies that pretend to be someone they are not
- Consider staff training to identify when something isn’t right with suppliers
If you are concerned about counterfeit components in your supply chain we are happy to provide advice. Call us on 01904 415 415 for a chat with our experts. The chip shortage does not have to affect your supply chain with our help.
23 June 2021
Semiconductor production capacity expected to hit records highs in 2021
As you probably know, we are in the middle of a global semiconductor shortage. Auto manufacturers are cutting jobs, brands are delaying the release of new products, and people are struggling to buy things like games consoles.
It’s a grim situation predicted to last a few years, but behind the scenes, semiconductor companies are preparing to come out of the chip shortage swinging.
In fact, it’s predicted that semiconductor production capacity will reach a record high in 2021 so long as additional production lines are completed. This is reliant on production lines coming online following investments made at the beginning of 2018.
According to industry forecasts, next year, another 10 production lines for 300mm silicon wafers will be added worldwide. These will contribute millions of semiconductors each year, helping to release some pressure on demand.
IC Insights also provides the following forecasts for chips: “By 2024, the average annual growth rate of semiconductor production capacity will be 5.9%. Compared with the average annual increase rate (5.1%) of semiconductor production capacity in the past 5 years (2014 ~ 2019), the growth rate slightly increased.”
Record demand for chips
The semiconductor market is experiencing record demand across all sectors. Chip manufacturers are struggling to keep up, but they are investing in new production lines to meet predicted demand several years from now.
The latest report from IC Insights' McClean Report says that the semiconductor market will shake off the Covid-19 pandemic with 13% growth in 2021.
Semiconductor unit shipments are expected to hit 1,135.3 billion in 2021, fuelled by chips that target connected devices, VR and AR, network and cloud computing systems, contactless payment systems, automotive electronics including autonomous systems and consumer electronics including smartphones.
As technology advances and the world becomes more digital and more connected, chip demand will increase ten-fold over the next few years.
Semiconductor manufacturers are struggling to keep up with demand now but there are signs of life as the IC Insights’ report demonstrates.
The world’s biggest chip companies, including TSMC, UMC, SMIC, Samsung, Micron and SK Hynix are going to play a leading role in how technologies roll out long into the future. There should be no doubt these companies will power our future.
What next for semiconductors?
The prices of semiconductors are expected to increase by 20% in 2021 due to a shortage in production capacity and higher silicon prices.
However, the future may not be silicon at all. Graphene chips are 100 times smaller than silicon chips and thousands of times faster. This technology is in its infancy but it’s showing great promise. We expect big things in the next decade.
We also expect the semiconductor shortage to persist until 2022. Shortages should lift beyond this as production capacity increases from new production lines. Chip makers will need to manage supply and demand better in the future. The current shortage is bad news for everyone. Thankfully, it won’t last forever. Of this we’re certain.
09 June 2021
Chip shortage hitting auto jobs
The global semiconductor shortage is hitting automotive manufacturers where it hurts, which will inevitably lead to job cuts across the supply chain.
We are already starting to see this with Stellantis, the car company formed by the merger of Fiat and Peugeot, saying it will cut over 1,600 jobs at its Illinois Jeep plant.
Elsewhere, the first sign of job cuts will be found in production cuts. Ford Motor Co has outlined a series of plant shutdowns due to the chip shortage, with five facilities in the US and one in Turkey affected. They have also cut output in Europe.
Volkswagen AG has also sounded the horn, warning that chip shortages will curb output in the coming months of 2021. VW expects worsening production from the chip shortage and for it to affect all their cars groups, including SEAT and Audi.
Billions in losses
Job cuts appear to be inevitable across the automotive industry as manufacturers count the cost of production constraints caused by the chip shortage.
It is estimated the global auto industry will take an £80 billion hit in 2021. Several manufacturers have come forward with their own estimates. Ford says the chip shortage will cost them up to $2 billion in 2021 alone.
Unfortunately, it is ordinary workers who will be punished. With fewer cars to make, workers involved in the manufacturing of cars will be cut first. We have already seen this with Stellantis. Other manufacturers will likely follow.
Why the chip shortage?
Modern cars have more than 1,000 chips in them and the smartest, most connected models, such as those with ADAS systems, have over 3,000 chips. So, even a small supply constraint can set back production.
However, this is no small supply constraint.
It appears that no auto maker is immune to the chip shortage brought about by cancelled orders at the peak of the coronavirus pandemic.
When the coronavirus pandemic hit, auto makers cancelled chip orders. Electronics manufacturers filled this gap in demand with soaring sales. Now that auto makers need to ramp up chip orders again, they have nowhere to go because most chip makers are running at 98-100% capacity making chips for other booming sectors.
This has caused a global semiconductor shortage that has affected all industries and all players. Even Samsung, who make their own chips, are struggling. The shortage is predicted to last 1-2 years until new foundries become operational.
The semiconductor shortage won’t last forever, and people need cars. Production will accelerate in the years to come. However, jobs may still be at risk.
Sadly, the chip shortage could accelerate digital transformation in manufacturing facilities, with the displacement of human workers for machines.
This is commonplace, but traditional brands may now seek a permanent solution to job cuts through technology. Automated plants are inevitable.
In any case, the future of the automotive industry is bright so long as you extend your horizon. The chip shortage is likely to last for the next 2 years. If you work in the automotive sector, strap yourself in. There’s more drama to come.
02 June 2021
IBM says chip shortage could last two years
As technology has advanced, semiconductors have found their way into everything that requires computing power, from coffee machines to cars. But the manufacturing output for semiconductors has not kept up with this change.
The semiconductor industry has also been hit with an industry rotation in demand that it was never prepared to deal with.
This happened at the start of the coronavirus pandemic when automotive manufacturers scaled back semiconductor orders. Lockdowns meant they weren’t making enough cars, so they scaled down and battened the hatches.
Meanwhile, the demand for data centre, computing and home device semiconductors soared. Rather than finding themselves down on orders, semiconductor makers were all of a sudden making more semiconductors than ever before.
And then the automotive sector came roaring back.
Now, the semiconductor industry is in a state of disarray. Manufacturers are struggling to make enough chips in a situation we’ve called Chipageddon. This is compounded by the fact that silicon prices are soaring, making chips more expensive.
How long will the chip shortage last? The latest opinions don’t deliver good news - IBM says the chip shortage could last 2 years.
The president of IBM, Jim Whitehurst, has said that the current chip shortage could last another two years. Here’s what he said in an interview with the BBC:
“There's just a big lag between from when a technology is developed and when [a fabrication plant] goes into construction and when chips come out. So frankly, we are looking at couple of years… before we get enough incremental capacity online to alleviate all aspects of the chip shortage."
What Whitehurst means is it takes a long time to set up a chip fab before it can start producing chips. It takes 12-24 months typically, so you have a situation where even if a lot of fabs are being built, they won’t contribute for years.
The chip shortage is so severe that it has led IBM to look towards other ways to meet demand. “We're going to have to look at reusing, extending the life of certain types of computing technologies,” says Whitehurst, “as well as accelerating investment in these [fabricating plants], to be able to as quickly as possible get more capacity online."
IBM isn’t alone
There is a serious imbalance in the semiconductor industry, and this is a problem many companies are having to contend with.
For example, Ford cancelled shifts at two car plants earlier this year and said profits could be hit by up to $2.5bn due to chip shortages. Meanwhile, Apple announced it would take a $3 billion to $4 billion hit due to the global chip shortage.
However, the most telling story of the semiconductor shortage comes from Samsung.
Samsung is the world’s largest manufacturer of DRAM and the world’s fourth largest semiconductor manufacturer, and even they are experiencing shortages, having to delay the launch of the next-gen Galaxy Note until as late as 2022.
The fact that Samsung is experiencing a chip shortage when it manufactures its own chips tells us everything we need to know - the chip shortage is severe. It isn’t a small shortage at all - it’s an enormous shortage affecting everyone across the supply chain.
Unfortunately, it looks like the global semiconductor shortage will be around for a few years yet, and things could get worse before they get better.
The semiconductor shortage is the result of a catalogue of problems going back several years. Here are some of the highlights:
Intel is the world’s leading supplier of CPUs for PCs and data centres and in 2018 they caused a chip shortage with the troubled development of 10nm chips. Intel’s mistakes have led to a shortage in CPUs for computers.
Declining DRAM prices
DRAM is a computer’s main memory. In 2019 and 2020, prices for DRAM declined, causing the biggest players - Micron, Samsung and SK Hynix - to curb their output. This led to supply constraints when the coronavirus pandemic hit.
The global demand for chips has hit an all-time high. Data centres, computers, cloud services, augmented reality, 5G, connected devices and connected vehicles are fuelling demand. This is great for chip sales, but the industry can’t keep up.
The U.S. created a semiconductor shortage of its own making when they levied sanctions against several Chinese companies, including SMIC and Huawei. This exasperated the chip shortage, placing strain on domestic manufacturers.
Coronavirus pandemic and cancelled orders
During the coronavirus pandemic, demand for semiconductors soared in some industries (e.g. electronics) and dropped in others (e.g. automotive). When demand came back for “down” industries, demand didn’t drop for “up” industries, leading to a shortage.
We now have a situation where carmakers are battling the electronics industry for chips. There aren’t enough chips to go around and increasing manufacturing capacity is impossible without significant investment in new foundries.
The electronics super cycle is not going to end anytime soon because there are so many tailwinds, including self-driving cars, VR, AR, AI, 5G and space travel. So, we cannot expect demand to drop and the chip industry to catch up with itself.
To meet demand, we need new foundries. These take 12-24 months to set up. Many companies are already building new foundries, or they are boosting capacity at existing plants, which is good news for the long run.
In the here and now, manufacturers can meet demand for chips by partnering with an electronics component distributor like us. We specialise in the procurement and delivery of electronic components and parts (including semiconductors) for a wide variety of industries from the world's leading manufacturers.
The semiconductor shortage has affected the entire manufacturing supply chain but our close links in the industry mean we have better access to chips than most. No promises, but we have an excellent track record across all sectors.
Get in touch with us for a chat about your needs. We’re here to help.
Call: 01904 415 415
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