After close to two years of continual news coverage on the global semiconductor crisis, there is finally talk that the chip shortage could come to an end—and soon! But is it true? What is the current state of the semiconductor industry? While there are a few positive indicators supporting an early end, including promising US government policy at last in place, experts remain convinced that shortages may still persist late into 2023 or 2024.
There are a few signs that point towards an end in sight to the continued component shortage, or at least big improvements in the foreseeable future. In fact, several articles have circled the news reporting that companies are starting to get relief after years of struggling to keep up with demand amid the global chip shortage. One report from Bain & Company even stated that some automotive and industrial companies are seeing relief from chip shortages—two industries that have been hit the hardest in the last few years.
On top of that, lead time is slowly starting to decline. An article on Bloomberg.com stated that, “chip delivery times shrank by four days in September, the biggest drop in years.”
While promising, that decline is very minimal compared to where it needs to be. Lead time remains double what it was pre-pandemic. In early 2020, lead times hovered around 12.7 weeks. Currently, lead times remain at an average of 25 weeks.
But, the most promising influence is The CHIPS and Science Act of 2022, signed into law on August 9, 2022. The CHIPS and Science Act is part of an industrial strategy to revitalize domestic manufacturing, create good-paying American jobs, and strengthen American supply chains. It will boost American semiconductor research, development, and production within the United States.
The new legislation is set up to help level the playing field by enabling the U.S. to wean its reliance on other countries for materials critical to chip production. SIA’s recent press release on the Act, stated that it “includes $79.344 billion in government spending over 10 years.”
And, that these “investments will ensure more resilient chip supply chains for key manufacturing industries in the U.S. and for the national security community.”
While we have a lot of catching up to do, it is a huge step in the right direction.
While there are a few reasons to remain hopeful, there are still a couple of factors that cause experts to be skeptical about the future of the semiconductor industry.
Global events are usually unpredictable and out of our control. But they all have a major impact on business. The semiconductor industry seems to have been the hardest hit within recent years. Among all the supply shocks sparked by the pandemic, the shortage of semiconductor chips is among the most widespread and the hardest to resolve. Here are a few of the circumstances worldwide that have had the greatest impact on manufacturing:
The leading cause of the semiconductor crisis continues to be strong demand and low supply. While all of the aforementioned global events have had a major impact on supply, demand has increased exponentially due to technological advancements and the increased demand for electric vehicles.
Unfortunately, the fastest route to relief of the shortage is softening demand—but we won’t see sales slowing down anytime soon. In fact, SIA reported that worldwide semiconductor industry sales are predicted to reach $633 billion in 2023 from $601 billion in 2022.
While there is stabilization with some components, anything can happen at any time. Taking the necessary steps to ensure you are prepared to meet your customers’ demands are vital to the success of your company. So, what can you do?
Some organizations have turned to short-term solutions that include designing products based on availability or leaving product features that rely on semiconductors as “optional” upgrades. However, a more permanent solution requires strategic planning like signing multi-year procurement deals, prepaying for supply, and partnering with the right electronic component distributor for your needs.
Electronic component distributors work differently than original component manufacturers (OCMs) and original equipment manufacturers (OEMs). Electronic component distributors have access to markets and storage facilities that OEMs and OCMs do not. These distributors usually offer custom services, such as tech support, small quantity delivery, and scheduled or just-in-time deliveries. These services are often not offered by the original component manufacturer.
Area51 Electronics is a diverse, independent and authorized electronic component distributor that has a large portfolio of manufacturers to work with and the added benefit of an independent distributor. That means all your hard-to-find, obsolete components are not so “hard-to-find” anymore.
To request a quote, submit a general inquiry, or speak to someone about how Area51 Electronics can help your company get through the shortage, contact us today!