Electronic components shortages have hampered recovery from the Covid-19 pandemic, particularly for OEMs and EMS companies. While opinion is divided over the root cause of the chip shortage, one absolute certainty is that the crisis will continue for several quarters and will persist into 2022.
So when can organisations expect the pain to stop, and what unexpected circumstances should they be ready for between now and then? Here’s what experts say we should expect of the component shortage going into 2022.
The snowball effect of the COVID-19 pandemic happens to be the biggest reason, amongst many experts, behind the global chip crisis. Other possible causes include the China–United States trade war and Taiwan’s 2021 drought. In addition, many automakers cut output and cancelled their chip orders earlier in 2020 in anticipation of low sales due to the pandemic.
On the other side, a sharp rebound in demand for cars coupled with a growing demand for consumer electronics led to increased demand for computer chips. Chip supply could not keep up, and a shortage of semiconductors soon ensued. But the shortage’s impact extended far past the electronic components manufacturers. According to analysts, the disruptions trickled down to most industries, with delivery times for new chip orders stretching to mid-2022. The chip shortage has roiled the global auto industry, forcing plant shutdowns and tough choices about which models to prioritize while supplies remain tight.
It's not all doom and gloom on the forecast, though. Experts predict that consumer tech will recover first, by the end of 2022, thanks to tech manufacturers having kept up relations with chip makers throughout the crisis. As for the automotive sector, the recovery period will stretch to 2023, as it did not sufficiently maintain relations. Automobile manufacturers, for instance, have had a tough time obtaining components since chipmakers prioritize manufacturers of smartphones, video consoles and other consumer electronics - they are often more profitable customers.
Meanwhile, Intel CEO Pat Gelsinger, said he anticipates the shortage will last at least until 2023, and it will take approximately three years for the industry to fully recover. Gelsinger’s comments come when the industry is pushing to expand chip supply capacity to respond to a surge in demand. For example, Taiwan Semiconductor Manufacturing (TSMC) is investing $100 million in extra capacity over the next three years. Samsung also announced a $17 billion fab in Texas, the production slated to begin in the second half of 2024.
Analysts say the situation will continue into 2022 and even 2023 until foundry capacity, substrates and component demand softens out. However, supply would remain tight until then.
There’s also a potential for overcapacity in 2023 when newly-built factories begin to come alive and are producing components again. According to IDC Research, this would be “towards the end of 2022”. The explanation is that the electronic comments industry is highly cyclical, running through a peak-to-trough cycle now and again. Upturns occur during periods of high demand, which in turn cause supply shortages, leading to higher prices and revenue growth.
However, that is often followed by downturns and inventory build-up, which result in falling prices and negative or zero revenue growth.
Therefore, the risk is that capacity will exceed demand when the new fabs come online. China, for example, has started seeing the tightness in the semiconductor supply chain begin to ease. Analysts say the semiconductor shortage has eased because demand turned soft.
While it is too early to predict when the glut will occur, experts are warning companies to brace themselves for a possible bullwhip effect. In the past, lengthening lead times have been followed by painful periods of oversupply. The concern is that companies are purchasing more than they need right now -- so-called double booking -- and then will later cancel the requests.
Even if the current global chip shortfall is resolved, it is possible that other supply issues will arise as the demand for electronics continues to grow. OEMs are currently being placed under incredible pressure, facing a lack of available inventory. Companies need to find ways to mitigate supply shortages and reduce the lead times. To do this, OEMs and EMS companies must start working more closely with their supply chain partners.
AIRENC is a peer-to-peer transaction platform that facilitates seamless collaboration among OEMs and EMS, thus helping organisations combat bottle-necks within their supply chains. The platform provides greater visibility into the electronic components market, allowing companies to identify where demands are likely to be at their most acute. They can then ensure that they stock appropriate quantities of component parts for them to keep up with their customers’ requirements.
Also, suppose a particular component is going to be difficult to source. In that case, OEMs and EMS can use the AIRENC platform to plan ahead or purchase alternatives directly from peers registered on the platform. This removes the overreliance on costly intermediaries and brokers who tend to take advantage of an emergency (and oversupply) to manipulate prices.