Semiconductor Supply Chain Challenges

With our crystal balls, we could foresee that the Corona Virus Pandemic would generate challenges for all industries but the problems that now face the semiconductor sector have been amplified 10 fold by the impact of, not only the virus but also the mass sway to home working enforced by multiple global lock-downs.

The problem does not stop at chip shortages, that is the tip of iceberg. The whole infrastructure from raw materials through to equipment, staff and facilities is scrabbling to increase capacity to meet growing demand. This is not the 1st "perfect storm" that has beset the industry but this one looks like it will influence the future, more than any of its predecessors. The Covid 19 "Perfect Storm" has 3 fundamental tornados to navigate around.

1. The Disruption the pandemic itself caused.
2. Home working and the huge increase in demand for electronic communication equipment.
3. The electric vehicle revolution, which is now gaining more energy and focus due the threat of climate change.

Approximately 18 months have now passed since the virus first appeared in Wuhan, in December 2019 and we are still living with restrictions to our social and business lives. Many industry experts fear that we are not out of the woods yet, not by a long way. As Offshore Assembly and Test Houses scrabble to increase capacity it is interesting to consider what strategies are being deployed by the organisations who rely on the fast supply of electronic components for their manufacturing needs.

Forward buying of products has been high on the agenda, securing product and price to enable the continuation of manufacturing. Inevitably component prices have increased as shortages have created a sellers market, with demand far out stripping supply. In isolation this would appear to be the perfect solution but this strategy will almost certainly create a void in availability as stocks are diminished and not replenished quick enough to meet customer requirements.

I have heard stories of 52 week lead-times, even 99 week lead-times, it appears at present that gravity is pulling us toward a black hole of supply uncertainty, which in turn creates opportunity for expansion, investment and sadly for the counterfeiters of electronic products.

The good news story of the new Bosch Wafer Fab opening in Dresden, along with talk of Intel potentially doing the same in Europe are all exciting indicators of a shift in strategy towards more local supply of products and less concentration in one geographic region.

But make no mistake, the counterfeiters will be exploiting this situation, if you cannot purchase direct from the manufacturer or the franchised distributor you need to be aware of the risks. Work only with companies with the right accreditation and reputation to avoid quality and reliability issues in the future. This also, may be a time where trailing edge products are obsoleted quicker than planned, to free up capacity for the leading edge components of the future.

To conclude, it could be a long while before the supply chains return to something like normal. In the mean time the situation presents the opportunity to completely re-map the structure of the existing supply base.