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Throughout much of 2020, the electronics supply chain suffered through various component shortages and unavailability of product. Now, as we head into the new year, it looks like those supply distributions are going to continue at least for the foreseeable future.
In a December report about the global chip shortage, Reuters says auto makers and manufacturers of TV, smartphones and other electronics are all facing a global shortage of chips. This, in turn, is causing manufacturing delays right a time when holiday shoppers are driving up demand for such products.
“The problem has several causes, industry executives and analysts say, including bulk-buying by U.S. sanctions-hit Chinese tech giant Huawei Technologies, a fire at a chip plant in Japan, coronavirus lockdowns in Southeast Asia, and a strike in France,” Reuters reports.
Other culprits include “under investment” in Asian, 8-in. chip manufacturing plants, which are now trying to ramp up production to meet consumer demand for electronics and autos. “For the whole electronics industry, we’ve been experiencing a shortage of components,” one electronics sourcing company CEO told Reuters.
The company faced delays in obtaining a microcontroller unit that was key to a smart headphone product that it was working on. “We were originally planning to complete production in one month,” the CEO told Reuters, “but now it looks like we’ll need to do it in two.”
Other components that are difficult to find right now include Wi-Fi and Bluetooth chips, both of which are currently experiencing delivery delays of over 10 weeks, according to Reuters. The dearth of components and resultant shipping delays are also driving up costs. For example, Dutch automotive chip supplier NXP Semiconductors has told customers it must raise prices on all products because of a significant increase in materials costs and a severe shortage of chips, Reuters reports.
Long Story Short
According to Jabil, the pandemic has significantly reduced market capacity for electronics components. The pandemic's epicenter—Wuhan, China—is home to many electronic and mechanical suppliers, it notes, so when the area went on lockdown and factories could not produce at full capacity or at all, there was not enough supply to meet demand.
“As the coronavirus spread around the world, so did the components shortages,” Jabil explains. “Factories in Malaysia, the Philippines, and Indonesia couldn't produce or ship parts. As a result, OEMs worldwide could not manufacture their own products either.”
Ultimately, it did not matter where the supplier was or where the end product was produced; entire supply chains were clogged by the pandemic, and all the inventory and flexibility had been sucked out of the market. The lead time for high-end semiconductors, which is usually long, doubled from 18 weeks to 36 weeks.
In a recent report on “Supply Chain Resilience in a Post-Pandemic World,” Jabil says that about two-thirds of surveyed OEMs lost $50 million or more because of these issues. About one-third lost more than $100 million, and 8% lost more than $500 million.
Not all Doom and Gloom
At least one contract manufacturer of electronic assemblies says that not all of the news is “doom and gloom” right now, and the outlook for the electronics manufacturing industry in 2021 is brighter than one might think.
Citing a McKinsey report, Matric Group says demand for semiconductors is predicted to increase in 2021, with automotive electronics on track for year-on-year growth of 28%-36% and the semiconductor industry set to increase by 11% by 2027.
“If COVID-19 has shown us anything, it’s that supply chains are surprisingly volatile,” Matric Group writes. “The longer a supply chain is, the more susceptible it is to disruptions, so electronics manufacturers should start finding suppliers closer to home. This will minimize the risk of expensive delays in production and reduce lead times.”
