Showing posts for September 2021
29 September 2021
Communications including 5G will drive the components market
According to IC Insights, the communication sector’s share of integrated circuit sales reached 35% in 2020 and is expected to grow to 36.5% by 2025. For perspective, the automotive sector’s share of integrated circuit sales was 7.5% in 2020 and will grow to 9.8% by 2025 - significantly less than communications.
What’s driving such high demand for ICs in the communications sector?
There are four big tailwinds:
- Edge computing
- Internet of Things
- AI (artificial intelligence), MI (machine learning) and data analytics
5G is the main driver for components demand, with 5G infrastructure rollout happening slowly, but surely. We are nowhere near a complete version of 5G, and networks are in a race against time to deliver a reliable service.
The first step for networks is replacing low-band 4G spectrum, followed by mid-band spectrum that uses 2.5, 3.5 and 4.5 GHz, enabling faster data speeds. The final step is the rollout of millimetre wave, which enables true 5G speeds. Millimetre wave also happens to be a precursor for next-generation 6G.
On top of 5G infrastructure rollout you have more 5G-enabled devices coming to market, such as smartphones, tablets and laptops. Smartphones, in particular, are leading the way for 5G adoption, putting faster data in our hands.
The rapid growth in IC demand in the communications sector also stretches to other components like modems, memory and antennas. 5G isn’t just an IC boon - it’s a boon for all the electronic components needed for 5G.
Second to 5G we have edge computing, which by a miraculous twist of fate is needed to deliver a 5G experience (and needs a whole lot of components).
Edge computing puts compute capabilities relatively close to end users and/or IoT endpoints. In doing so, it reduces latency, while 5G delivers faster data speeds, providing a seamless experience on certain devices.
Internet of Things
IoT describes a network of connected smart devices that communicate with each other. For example, a vital sign monitor in a hospital could communicate with medicine dispensers and automate medicine dosages for doctors.
The Internet of Things has been talked about as a trend for several years, but we now have real applications that are useful.
AI (artificial intelligence), MI (machine learning) and data analytics
AI (artificial intelligence), MI (machine learning) and data analytics require enormous, powerful data centres to power them. These data centres require significant investment in chips, memory and other electronic components.
Also, AI, MI and data analytics need cloud computing, edge computing and in some cases 5G to deliver a real-time experience.
By 2025, the communications sector is forecast to have a 36.5% usage share of integrated circuits, making it the biggest consumer of semiconductors.
Demand for integrated circuits, discrete circuits, optoelectronics and sensors will grow to an all-time highs thanks to the industry tailwinds in this article. The future is bright, but to stay ahead, a robust supply chain will be needed.
Electronic components distributors like Cyclops are helping supply meet demand, while the communications sector battles to secure chip orders. Call us today at +44 (0) 01904 415 415 or email email@example.com
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.
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.
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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