Semiconductor Market Continues to Tighten

The post-COVID resurgence of electronic end markets has caused increasing computer chip shortages over the past several months. Many are predicting that things will get worse before they get better, with the difficulties potentially lasting through 2022.

After the automotive industry effectively shut down in the second quarter of 2020, the restarting of manufacturing lines, refilling of supply chains, and the continued shifting toward electronic vehicles and increased electronics content have left chip makers scrambling to keep up. Also, demand for 5G smartphones that take advantage of the new high-performance 5G networks and laptops to support the ongoing work-from-home movement has put even more strain on the semiconductor supply chain.

With lead times extending to six months and beyond for many components, pricing is rising accordingly, with many component families seeing north of 25% price increases. This, in turn, is causing even more near-term demand as original equipment manufacturers and distributors try to stockpile components to beat future expected price increases.

With products in such high demand, customers will expand their search for components, sometimes ending up in the grey market. This brings the risk of counterfeit or poor-quality chips that can enter the supply chain and cause reliability issues in the end product.

To avoid this risk, some manufacturers may delay the launch of new platforms, choosing to resurrect or sustain a mature product that uses parts that may have better availability. Often, components that have had an end-of-life notice issued, or aged slow runners, can be effectively utilized if they are still sourced in an authorized channel.