Chips, everyone wants them. Everyone needs them. Now that we are at the tail end of Q4 and on the last leg of our sprint toward 2022, it’s time to revisit the market. These updates come as a mixed bag. Passive components as a whole are stabilizing with only a few outliers, like oscillators and aluminum capacitors, increasing in lead time. Some components, semiconductors especially, have updated lead times reaching up to 80 weeks, according to the Register. That’s May 2023, over a year from now.
However, for some parts, we finally may be reaching the light at the end of the tunnel. A notable series of slowdowns over Q3 has experts tentatively optimistic about the shortage reaching a peak.
According to some reports, updated lead time trends for the next three months shows progress.
Components that are facing price hikes and lead times lengthening continues amongst semiconductors and certain LEDs.
Demand Continues to Grow Despite Shortage
The Semiconductor Industry Association (SIA) has announced “worldwide sales of semiconductors totaled $144.8 billion during the third quarter of 2021.” That’s a massive increase of 27.6% over the third quarter of 2020 and 7.4% more than the second quarter of 2021. The SIA also stated that “more semiconductor units were shipped during the third quarter of 2021 than during any other quarter in the market’s history.”
Many industries hoping to get their hands on semiconductors, particularly those with volatile and non-volatile memory might have to wait. As it stands, more and more consumer products being manufactured depend on chips.
The ever-increasing demand for semiconductors can be attributed to the perfect storm of 2020 and the Covid-19 pandemic. With people at home and the semiconductor industry facing the brunt of the new WFH (work from home) model demands, the orders were endless. Simply put, there were not enough chips to go around.
Finite numbers of raw materials to make these components means only a certain amount of buyers can get their hands on these allocated chips. The ones that can are the few that can pay the hefty price tag.
Inflation Grows in Turn with Demand
The rising demand in chips and a lack of materials contributed to the steadily increasing rise in prices. Arista and Juniper, two digital network companies, have reported price hikes across their entire supply chain. This includes raw materials used to make semiconductors such as silicon ICs, printed circuit memory, connectors, among other important parts.
Both companies have said price hikes “ranging from 15% to 200% across our entire supply chain” are happening. For those that can afford the price hikes are resorting to “over-ordering to build buffer stocks.” Unfortunately, that leads to a whole other problem that can extend and worsen the effects of the shortage.
Double Ordering Might Be Foreshadowing Future Glut
Many companies are participating in competitive bidding and double-ordering. By ordering more, they’re trying to keep ahead of the shortage through excessive supply. Willy Shih, a Harvard professor in manufacturing and global supply chains explained the problem with double ordering. “They buy more components than they need in case the supply dries up, which distorts the picture of future demand.”
Experts are worried about what comes after when lead times start to fall. Perhaps an overabundance of chips will then lead to a steep drop in price and, once again, lead to disruption. David Yoffie, a Harvard professor and former Intel board member, is looking back at past surges in the semiconductor industry. There he found a worrisome trend. Most surges are followed by “spectacular down cycles.”
Bloomberg’s article confirmed Yoffie’s concern stating that lengthened lead times “have been followed by painful periods of oversupply.” The major concern here is that customers who double order might and have canceled at a later date.
Light at the End of the Tunnel
Despite upward trends and future worries, doom and gloom isn’t the only thing on the horizon. Long lead times are most likely to continue to grow, however, certain components are stabilizing. Ian King at Bloomberg noted that “delivery times for chips in October posted their smallest gains in about nine months.” This research was done by Susquehanna Financial Group’s Chris Rolland who also mentioned in their article that “power management and optoelectronic chips were easier to come by in October.”
While certain areas in the supply chain are still feeling pressure, Rolland is tentatively positive. “Our data does not confirm the top of the semi cycle,” Rolland said. “We believe the slowdown is notable.”
What Can Companies do to Ease Lead Time?
Thankfully, the struggles that come with extended lead time and shortages can be lessened. In fact, most organizations do not have to wait and cross their fingers, hoping to weather the chip storm. It might take time, but actively mitigating shortages works better than prolonging through double-ordering.
The best advice industry experts have for buyers during this time? As Willy Shih stated, complete and exact orders of products should be made. No doubling orders hoping one shipment will arrive faster before canceling the second. Commitment will help supply chains during this strenuous time.
Everyone is in the eye of the hurricane, facing lengthy lead times and painful inflated prices. Relationships between original equipment manufacturers (OEM) and their electronics manufacturing services (EMS) must be kept strong, now more than ever. Stabilization in some areas marks a change in the tide. Everyone needs to work together to keep it from sputtering out.
When in Doubt, Collaborate.
Working together is something Area51 Electronics knows best. As an independent and authorized distributor or electronic components, collaboration with our partners, suppliers, and manufacturers makes the best of a tough situation. With access to a diverse network of authorized manufacturers and a stellar counterfeit mitigation system in place to ensure authentic electronic components – shortages become a little less imposing.
After all, with the competitive edge Area51 Electronics has as a distributor, the uncertainty of the future becomes less murky. Offering independent and authorized distribution services means less “jumping from one distributor-type to another.”
Shortages are hard, but having a positive driving force behind you will get you through the storm. That is what Area51 Electronics can do.