Semiconductor Supply Chain Issues Persist

State of the Semiconductor Industry—Q4

Long lead times for semiconductor components show no signs of easing, as many manufacturers of the computer chips report that they are sold out through 2022. Unlike some cycles in the past that were driven primarily by one end market, the applications for semiconductors today are ubiquitous, and demand is coming from a wide variety of products—from data centers to notebook PCs to IoT to automotive electronics to consumer electronics and more.

Diminished demand from any one sector will not alleviate the chip shortage. It will take a significant increase in output or a global economic slowdown to bring supply and demand back together. And production increases can take many months—or even years—and cost many billions of dollars of capital investment. In addition, the shortages are compounded by supply chain disruptions related to COVID-19, which has caused labor shortages and shipping disruptions.

A result of the constrained supply has been unprecedented price increases for semiconductors and end-to-end overhauls of supply chain models. No industry has suffered more from the chip shortage than the automotive industry, which has relied on just-in-time (JIT) manufacturing for years. However, when you have relatively low-cost components with 16-week manufacturing cycle times and fluctuating demand, JIT falls apart.

Automakers are seeking to build closer ties to their semiconductor suppliers and rethink the amount of buffer inventory of these increasingly critical components in the design of their supply chains going forward. This is good news for distributors, who can demonstrate tremendous value by providing that buffer to electronic equipment manufacturers.