Showing posts tagged 'discrete circuits'
22 September 2021
Causes of IC Shortage
There’s a serious shortage of integrated circuits affecting every corner of the electronics world. Discrete circuits, optoelectronics and sensors are also experiencing shortages, putting pressure on supply chains from top to bottom.
What are the causes of IC shortages? This article will explore the main causes, so that you can understand what’s going on.
The coronavirus pandemic reshaped demand for semiconductors, shifting automotive demand to device demand (car plants shut down, while demand for electronic devices soared with stay at home and remote working).
Now that automotive production is ramping back up, there aren’t enough ICs to go around, causing a shortage across all industry sectors.
The pandemic also caused short-term, unplanned plant shutdowns and labour shortages, reducing the number of ICs manufactured.
The logistics industry is still recovering from COVID-induced shutdowns and travel restrictions. While air and sea freight is running at good capacity, road transport is proving difficult across borders, creating supply constraints.
In 2020, air cargo capacity saw a 20% decline. In 2021, it’s back to normal, but you still have the problem of moving components on the ground.
In the UK, there is also a serious driver shortage underway that is affecting everything from electronic components to supermarket shelves.
The amount of time that passes between ordering semiconductors and taking delivery has increased to record levels. In July 2021, it surpassed 20 weeks, the highest wait time since the start of the year and eight days longer than June.
Longer lead times can be caused by a variety of factors, but in this case it’s caused by foundries running at capacity with no room for acceleration. Labour shortages and problems getting hold of materials are exasperating the problem.
A shortage of raw materials is causing big problems for semiconductor manufacturers, who can’t get the materials they need to meet demand. Shortages of raw materials and high raw material prices are combining to squeeze production.
The soaring price of raw materials is also increasing the prices of ICs, with some components seeing a yearly price increase up to 40%. These costs will eventually slosh back to consumers who will have to stomach higher prices.
Whether we’re talking about the communications, automotive or consumer electronics sector, IC stockpiling has exploded. The world’s biggest manufacturers have stockpiled huge quantities of components for themselves.
This ringfencing of components by nervous manufacturers eager to secure inventory takes a significant volume of components off the open market, squeezes the supply chain, and gives the biggest players an upper hand over everyone else.
For all their bad press, China make a lot of chips - around a billion a day. Their biggest chipmaker, SMIC, was hit by US sanctions in late 2020, eliminating SMIC chips from the US market. You’d think this would mean more chips for the rest of the world, but China recoiled and went defensive, keeping most of the chips for themselves.
US sanctions twisted the global supply chain out of shape, creating volatility in an industry that was already in turmoil from the pandemic.
01 September 2021
Component Prices Rise 10% to 40% - But why?
While component price rises are expected when demand outstrips supply, the scale of recent increases has come as a shock to many businesses.
In its Q3 Commodity Intelligence Quarterly, CMarket intelligence platform Supplyframe reports that some electronic components have seen prices rise by as much as 40%, making it uneconomical for products to be made.
In particular, semiconductors, memory, and modems are seeing 10 to 40% price increases, exceeding what most analysts envisioned for 2021.
Why are prices rising?
Price rises start with materials. There are long lead times for many raw materials, causing shortages. Add rising commodity prices and difficulties transporting products and you have a disrupted manufacturing economy.
You also have to factor in the impact of the coronavirus pandemic, which has caused labour shortages and disrupted the manufacturing economy with shutdowns.
Logistics is also a big fly in the ointment for electronic components. The industry is recovering from COVID-induced shutdowns and travel restrictions are causing problems at borders, creating delays that ripple through the supply chain.
Supply and demand
The bulletproof economics of supply and demand also rule the roost for electronic components, and demand is higher than it has ever been.
We are in a situation today where most electronic components manufacturers are running at 99-100% capacity and can’t keep up with demand.
Demand is outstripping supply for chips, memory and communications components like integrated circuits, discrete circuits, optoelectronics and sensors, creating a bidding war as manufacturers scramble to get what they need.
Growing demand for new technologies
Emerging technologies like artificial intelligence, machine learning, virtual reality, augmented reality and edge computing are fuelling demand for smarter chips and data centre modernisation, while technologies like 5G and Wi-Fi 6 are demanding infrastructure rollout, which requires significant investment.
Across the board, technology is booming. Manufacturers are making more products for more people, and they must do so while balancing costs at a time when component prices are rising - no easy feat even for established businesses.
Everyone is raising prices in line with their own cost increases, from semiconductor manufacturers to outsourced fabs and suppliers. At 10 to 40%, these increases are putting pressure on supply chains and businesses.
How many price increases will target markets absorb? How can we sustain production without significant margin pressure? These are the challenges facing manufacturers, who are stuck between a rock and a hard place right now.
There are a few solutions:
- Equivalents: Source equivalent components from different brands/makers/OEMs that meet size, power, specification, and design standards.
- Use an electronic components distributor: Distributors are the best-connected players in the industry, able to source hard-to-procure and shortage components thanks to relationships with critical decision-makers.
Prices will fizzle down, eventually
Although research published by Supplyframe says pricing challenges will remain through early 2023, they won’t last forever. Price rises should fizzle out towards the end of 2021 as manufacturers catch up to orders and reduce disruption.
If you are experiencing an electronic component shortage, we can help. Email us if you have any questions or call us on 01904 415 415 for a chat with our team.
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