This year has started as last year ended: with uncertainty and shortages. So what else should we expect? Owner and MD of Astute Electronics, Geoff Hill, and their Sales and Marketing Director, Mark Shanley, sketch out a plan.
1. Components will become scarcer
Last year we saw it all: Covid factory shutdowns, material shortages, factory moves, political unrest, tariffs, hikes in freight, legislation that changes material/design as well as mergers and acquisitions with the result that more lines are becoming obsolete.
“All of these situations have impacted on lead times and availability, but it’s our job to minimise the disruption,” says Astute’s owner and MD, Geoff Hill.
We’ve observed more diverse demand spikes across industries, especially within those segments that have benefited from Covid, e.g. medical, network servers, and all electronics enabling work from home. This volatility of sales makes it difficult to forecast and creates challenges in the supply chain.
“A chip shortage is causing major disruptions in the automotive sector – the worst seen for many years. All the largest manufacturers are reportedly suspending production for days or weeks at a time. Carmakers are competing for manufacturing capacity with smartphones, servers and a host of other segments,” says Geoff.
Memory remains a volatile market: DRAM market warnings about shortages in the second-half are being sounded. NOR flash is tipped to substantially increase in price this year due to shortages driven by strong demand from SMIC’s logic chip customers.
It’s possible that demand may exceed supply for FPGA (field-programmable gate array). These ICs are configurable in the field, making them well suited to aerospace and defense (A&D) applications.
Astute’s Marketing & Sales Director, Mark Shanley, has observed shortages of Micron DDR due to obsolescence; passives due to global demand; and with the COVID19 outbreak the demand for sensors in medical devices has really taken off.
“Passive component market in 2021 will come under a lot of pressure from 5G smartphones, IoT applications and automotive electronics. Smartphone manufacturers use trillions of the MLCCs produced globally each year,” says Mark
2. Expect lead time extensions
Overall, we’ve managed to control supply chains for our customers and limit lead-time extensions, says Mark, but “you know that it’s coming in Q1”. With 5G ramping up and medical applications coming to market, it’s no surprise that lead times are coming under pressure and the market is firming up. There are already production shutdowns across the automotive industry due to the consumption in electronics for infotainment, connectivity, driver assistance aids and hybrid engines, this will have a major knock on effect across all industries.
Are customers aware of these shortages? “Unfortunately, some customers remain behind the curve of understanding these issues. They are leaving themselves vulnerable without an effective procurement strategy,” says Mark.
3. Some sectors will be worse affected than others
The entire semiconductor industry, including semiconductor wafers, foundry and semiconductor packaging, is facing a shortage of raw materials or insufficient production capacity.
“Some sectors may ride it out – those with huge volume will have the buying leverage to get what they need,” says Geoff. But these effects also vary by industry. The defence sector, for instance, is vulnerable due to lower volumes, high complexity mix and the focus on longer lifetimes.
4. Shortages will have consequences
The problems are many and varied. “We’re seeing price increases; manufacturing stoppages and time to market delays; lost revenue and narrowing profit margins,” says Mark.
“Buyers need to work on their pricing strategies or run the risk of no product. Purchasing programmes should be individualised with more investment in stock for key customers.
“It’s possible they may need to source outside of their comfort zone. We’ll see more grey-market trading and this will bring an element of risk into the supply chain,” he concludes.
5. Companies will need to build better relationships
It’s difficult to see too far ahead, but for now we know that component shortages are still affecting a variety of different industries, says Geoff. OEMs can forward-load and can increase stockpiles or commitment to distribution, but this is dependent on industry. CEMs are generally more agile and reactive.
Mark finishes, “I advise companies to discuss their long term schedules as early as possible. Build a relationship with your supplier. We can’t emphasize the importance of supplier relationships enough. In an electronic component shortage market, it is often down to the suppliers to determine who they can support and the customer to decide who they can trust.”
