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Electronic Component Market News - February 2023 Update

Electronic Component Market News - February 2023 Update

A chip held up

Experts Cautious About Shortage Downturn While Engineers Embrace This Golden Opportunity - February 3, 2023

The chip shortage is still making headlines, but not in the way we’re used to. Over the last few years, the worsening shortage took the spotlight for weeks and months. Now, industry leaders are tentatively declaring the shortage is entering its final hours. While some allocation issues remain, many have acknowledged that the worst is over.  

Or is it?  

Despite the consensus declaring the shortage over, some troubling aspects that caused its massive impact remain in place. Many industry leaders warn others that now is not the time to be complacent. Now is the best time to strategize and embrace new technology to find more solutions in case the shortage begins anew.  

And that threat is still very much on the table.  

Intel Warns the Downturn Won’t End the Shortage

Shortage easement hasn’t come with the relief many of us wanted. The shortage’s downturn was expected to come via eventual capacity increases and original component manufacturers (OCMs) raising production to a complete 100%. The reason the shortage continued for so long can be attributed to labor and raw materials shortages, preventing production capacity from reaching the desired 100%. While those issues have been tackled, neither has been entirely resolved.  

These unresolved issues are why some industry leaders approach shortage easement with trepidation, not excitement. Intel’s CEO, Pat Gelsinger, has a usual positive attitude regarding the current and future state of the semiconductor industry. Over 2022 and now 2023, Gelsinger’s approach is far more cautious. While Gelsinger and most industry leaders agree the future of the semiconductor industry will likely return to massive growth, the present state is more chaotic.

“We have just gone through the most significant semiconductor shortage of 30 years,” Gelsinger said. “And we’re still not finished with it.”  

The shortage’s slowdown is thanks to various factors, most of which are economical. The demand for advanced nodes and other white goods favored chips dropped like a stone in late 2022. The sudden deterioration led to production cuts and layoffs worldwide at OCMs and original equipment manufacturers (OEMs). The demand for legacy chips and larger nodes, many above 28nm, is still high.  

Intel reported that chip shortages for cars, robots, and healthcare products were still high. Gelsinger likened this divide to “pressing the gas and the brake at the same time.  In some areas, you’re starting to see inventory, and we’re adjusting those, and other areas, we’re still dealing with a shortage.” Gelsinger isn’t the only one concerned with the industry's present state either. Synaptics CEO, Michael Hurlston, echoed Gelsinger’s warning early this month. That demand for some components is still very tight and should demand bullwhip backward, ravenous, we’ll be thrown right back into a shortage.  

The reason is that the main problem that contributed to the significance of the semiconductor shortage, capacity problems, and singular dependence in supply chains, still needs to be resolved. Many OEMs still utilize sole sources for large numbers of components in their designs, and OCMs still need to operate with 100% capacity. TSMC, which is currently ramping up production to try and get to 100% to fulfill automaker orders, is still not there.  

Intel, among other OCMs and OEMs, has been cutting production and conducting layoffs. Facing a tsunami-like force of excess stock growth and revenue dropping, staff cuts and even facility plans are on the chopping block. The concern is that demand can usually swing back for white goods and other personal electronics just as fast if economic pressures lift. The issue of capacity and dependency on singular geopolitical regions or sole source suppliers has yet to be addressed.  

With these problems left unchallenged, a shift in demand could reignite the shortage. We aren’t entirely out of the 2020-2022 shortage yet.  

As the Shortage Slows, Engineers Are Branching Out

For many, the last few years have evoked an overwhelming feeling of frustration. The long string of complications from bad weather, pandemic lockdowns, to even a ship wedged in the Suez Canal severed to vex even the most weathered industry experts. Most organizations, from OCMs to OEMs alike, focused on survival.  

Even those experiencing an enormous growth and revenue boom, such as white goods and personal electronics OEMs, focused on tackling voracious consumer demand. Those who suffered weak demand either pushed through or closed for good.  

The shortage is slowing down, but it’s far from over. But now that there’s breathing room, many engineers are taking this break to capitalize on present challenges rather than fall back into the pre-shortage step. Intel’s Andy Grove embodied and spoke of this exploration and boost of innovation that rings especially true today.

“Bad companies are destroyed by crises; good companies survive them; great companies are improved by them.”

Engineers are exploring. Avenues and components previously written off by engineers for one reason or another are now being rediscovered and thoroughly investigated. Why? The shortage and growing glut have given engineers a golden opportunity to think outside the box. Others are far more plentiful, with specific components still facing allocation issues or long lead times.  

Due to abundance, some companies are shifting toward CPU architecture, despite limited use in mainstream devices. In an article by Electropages, engineers have been allowed to “jump ship onto a new platform that not only has the benefit of code compatibility but eases dependence on unfair licenses and royalties.” That encourages many engineers to explore architecture they’d typically avoid.

By diversifying their platforms, engineers gain valuable knowledge by boosting innovation through different avenues and aiding supply chain issues. Working with different architectures can provide insight into future device design or handling challenges. It pushes engineering staff to pursue other paths that’d be ignored if they had never branched out in the first place.

Complications from the shortage are bound to last for a while longer, even with building excess. During this strange period of recovery and challenge, OEMs and their engineers should investigate new possibilities. The best way to do so without wasting time that could be used for innovation is by purchasing components in a global marketplace where vetting, transport, and even warranty are assured. The time for simple survival is over. Let’s break out of the box together.

Rows of car hoods

Shortage Might Be Ending, But History Warns of Cyclical Boom-Bust Nature - January 27, 2023

The automotive shortage might be coming to an end. According to industry experts, in another year, long wait times and missing functions could be a thing of the past. Unless semiconductor demand skyrockets later this year once the excess stock reaches its peak and OEMs start reordering.  

According to experts, the industry didn’t fix the main challenge of the semiconductor shortage. If demand were to pick up again, we could go right back to the beginning. After the long-lasting impacts of the shortage, we must keep doing what we can to prevent such a possibility.  

The Shortage is Ending but Could Be Back Quickly if Steps Aren’t Taken

Here’s some good news. In a new report by Accenture, a professional services firm, about 76% of semiconductor executives believe the supply chain challenges are ending by 2024. According to Hubs' report, about 65% of industry leaders believe 2023 will see overall improvement and a positive outcome.  

Mounting excess concerns and lowered capital expectations have not dampened that outlook. TSMC did well in Q3 of 2022 when others experienced significant drops in revenue but lowered its expectation by 5% for Q1 of 2023. However, TSMC believes recovery will come in the latter half of 2023. TSMC plans to increase production throughout the year outside Taiwan while watching growing global uncertainties.  

TSMC further stated that the auto chip shortage should relax relatively quickly. TSMC is considering building a second fabrication plant in Japan and possibly a specialized fab in Europe for auto components. TSMC’s CEO C.C. Wei told Bloomberg, analysts regarding predictions of the automotive chip shortage easing that “today [TSMC is] still not supplying 100% of the wafers the [automotive industry] wants, but it’s improving.”  

“We expect auto shipments to grow again this year,” C.C. Wei said.  

Though this good news comes with an important warning, CEO and president of small chipmaker Synaptics, Michael Hurlston, talked about danger with Barron’s, a financial newspaper published by Dow Jones & Company. Hurlston discussed the quick bullwhip of the chip shortage, that “customers have piled up inventory, crushing near-term demand.” Hurlston believes it will take until mid-2023 for customer inventories to balance out, and reordering is necessary.  

What concerns Hurlston is history repeating itself. A problem the industry saw during the PC boom during the pandemic was a return to capacity challenges. This boom-bust cycle has a long and problematic history within the tech industry. It happened with DRAM memory chips and, before that, disk drives.  

“The underlying problem of semiconductor supply has not really been addressed,” Hurlston said. “End demand will come back. There are more tailwinds for chip demand than at any time in history. A year from now, we could be right back in a massive shortage situation again.”  

That analysis is far too close for comfort. Industry experts gave their opinion on technological advancements that will keep the semiconductor industry alive when demand drops. If these products continue to boom, demand will likely shoot up again, kicking off another shortage.  

Accenture said the metaverse, digital health, e-mobility, and sustainability would be the four main drivers of technological advancement in the coming years. Each requires semiconductors either in the finished product or to create them. If demand picks up again as recession and inflation fade, chips that are now excessive could become short again.

Automotive Shortage Might Be Easing, but Vehicles Still Lack All Components

Chip giant TSMC sees the automotive shortage easing further this year, bringing relief to automakers. Many have restricted production from a lack of chips. TSMC and other OCMs are working diligently to bring automotive chip production up to 100%, something they have been unable to do since the start of the shortage. Once they do, it should only be a matter of months, if not a year.  

Except many automakers aren’t counting their eggs yet. Toyota sees the shortage as a significant problem throughout 2023 and beyond. After years of restricting production, the automaker’s hesitancy is understandable. Intel’s CEO, Pat Gelsinger, believes that the shortage will continue to wreak havoc until 2024, which lends more credence to Toyota’s trepidation.  

As capacity opens for more auto chips, scarcity still makes components unavailable. Due to the semiconductor shortage, Volkswagen is no longer shipping out its ID.4 with a heat pump. Audi’s Q4 e-Tron is also shipping without a heat pump, instead just having a resistive heater. When the semiconductor shortage lessens, and heat pumps are more available, they will be implemented back in production.  

While a heat pump isn’t standard for efficiency, at least with VW, having one increases the performance of the car’s battery in the most adverse of conditions. An example of which would be the frigid temperatures of a Canadian winter.  

The long wait times for new vehicles will likely be around for a while. If one expects to buy a car with all features included, it will probably take beyond 2024 to obtain.  

A global marketplace is best for those looking to prevent further production stalls from lacking automotive chips. Suppliers or other OEMs with excess chips can sell them online, where you can buy them outright. Quality inspected and vetted, buying components through Sourcengine ensures warranty-protected and traceable stock in time. So, you don’t have to go another year fighting to keep your lines open.  

A jet engine

Two Extremes: Either Cut Production from Too Many Chips or Increase Capacity Because There Are None - January 20, 2023

New year, same challenges. Chip supplies exceeded supply-demand faster than expected, thanks to macroeconomic troubles. Chipmakers raced to cut back production before it could spiral out of control. This strategy may have come too late at the expense of other industries. Recovery isn’t here, but there is progress, even at a half-step pace.  

Updates on the shortage need to be more explicit. The shortage is over, except it's not really, but it is mainly easing. Headlines change in weeks as the fragile supply chain attempts to mend. With sanctions and denied acquisitions with a nearly year-long war raging still, it’s hard to get a firm confirmation.  

The shortage is still ongoing for critical industries that depend on legacy chips. The need for advanced chips is dropping quickly, leading to shortage easement. But reaching a supply-demand balance across the board is a long way.  

Chip Inventory Rockets Past Target Levels Leading to Production Cuts

Who knew the chip supply-demand would shift from scarcity to surplus in a few months? Unfortunately for many, the early warning signs of an oncoming glut were buried beneath massive disruptions threatening to prolong the shortage another year. While the impacts from the war in Ukraine and Covid-19 lockdowns in China at the start of 2022 are still being felt, the shortage for some industries is over.  

Rising interest rates from inflationary prices combined with stock market drops have given rise to growing recession fears. The concern has deteriorated consumer spending and slashed demand for consumer products overnight. Chip inventory levels have exceeded target levels, and many are left with months of stockpiles they simply have no use. Chips degrade over time, and most of the advanced chip inventory may “go bad” before they go to an assembly line.  

Those suffering the most from excess inventory are personal computer, smartphone, and other white goods original equipment manufacturers (OEMs). These OEMs usually make up most of chip orders, and the large drop has left dozens of original chip manufacturers (OCMs) cutting production to avoid further build-up.  

Micron Technology’s Sanjay Mehrota said in an earnings call in December the company saw a 47% drop in revenue. Mehrota continued, “the industry is experiencing the most severe imbalance between supply and demand in DRAM and NAND in the last 13 years.” Worse is that the glut, even with production cuts, is expected to last far into Q3 of 2023, when it reaches its peak. Then it will begin to ease.  

Despite efforts to cut production in Q4 of 2022, the drop in demand plummeted faster. Inventory of memory and other specific chips has overwhelmed the supply chain. OCM giants, such as TSMC, believe it will take the entire first half of the 2023’s fiscal year to begin rebalancing. The more the economic slowdown worsens, the harder it will be to work through these excess inventories. At the same time, other OEMs out of smart devices and white goods sectors are still struggling with chip allocation.  

Rising prices on components from raw material shortages and inflated transportation costs have even impacted chips facing excess challenges, such as DRAM and NAND. OEMs must pay the inflated costs to keep production from stalls and those that can’t look elsewhere.

Automakers and Defense Manufacturers are Running out of Chips

Industries that require legacy chips, such as 90nm, are in for another rough year of allocation. Shortage easement and excess inventory concerns haven’t changed the grim outlook McKinsey and Company gave in their 2022 report. The automotive chip shortage is far more likely to last into 2024 and, if disruptions occur over 2023, beyond that.  

Inventories are spotty; the more EVs dominate automaker lineups, the more chips they will need. With many OCMs decreasing output and slashing production in response to slowing consumer demand for commercial products, will they keep enough capacity available for automaker orders?  

Order amount and ROI determine priority. It makes sense to increase capacity if white goods and other personal electronic OEMs are raising the amount ordered. The turn-around time between one order and the next is usually far smaller than in large industrial or transportation sectors, as those machines are needed to function for long periods. Without any incentive to increase capacity, it won’t be.  

The challenge is that while consumer demand is dropping, automotive demand is not. EVs continue to reach record sales across the globe, and the ongoing war in Ukraine is increasing the need for chips in DoD applications. Over the last few years, previous stockpiles held by both defense and automotive OEMs have dried up, leading to production stalls and the cannibalization of old equipment for parts.

It’s expected that it will take years to reach a supply-demand balance and, beyond that, rebuild diminished stockpiles. Unfortunately, it will take more time to increase production of legacy chips, along with pricey investments, to get there. Advanced chips, while plentiful now as they reach excess stock, are not commonly used in products meant for long use.  

There is hope, however, this will resolve faster and be more resilient in future as automakers and chipmakers enter into agreements to increase legacy chip capacity and develop new technologies to power future automobiles.  

Chips are facing price hikes across the board

2023 Is Kicking Off with Price Hikes Despite Excess Concerns - January 13, 2023

Happy New Year! Welcome back to your go-to source on shortage and component updates. The global supply chain is still fragile, and recovery is another year away. Unexpected hurdles popped up, leaving many of us waking up in the new year full of uncertainty.

In a twist of events, the price cuts planned for the holidays ended up buried beneath a sudden influx of price increases. More original component manufacturers (OCMs) have been raising prices to offset losses over 2022. Despite slowing demand, components experiencing excess even saw price hikes upwards of 10% in some areas. With continued raw material shortages and other issues continuing for the foreseeable future, the possibility of a worsening shortage still hangs over the global supply chain.  

Rather Than Cutting Prices, Manufacturers Have Increased Them, Thanks to Shortages

The shortage might be easing and excess component stock growing, but the price cuts of December are already dust in the wind. Thanks to the prolonged impact of the global chip shortage, raw material shortages, and rising energy costs, prices are not only staying high but also increasing.  

At the end of 2022, the sensor market saw its highest price hike in years. Growing by 11% from 2021, the continued scarcity of automotive components led to rising average selling prices (ASPs). Automotive microcontroller units have also boomed in price thanks to their widely adopted use in automotive applications. As a result, the Federation of Thai Industries (FTI) in Thailand expects car prices to increase by 5-10% to offset costs.  

The vice-chairman of the FTI, Surapong Paisitpatanapong, said that the global chip shortage along with Covid-19 outbreaks in China and the Russian invasion of Ukraine has contributed to product scarcity leading to higher prices. Rabid EV demand increasing across the globe by legislative initiatives ensure that these price hikes are less likely to end soon.  

Automotive components are not the only chips seeing price hikes. Ironically, even components many manufacturers have excess stock are also experiencing price hikes. Samsung Electronics, a large manufacturer of NAND and DRAM components, reported a dim outlook for both component markets in October 2022. Softening demand in the PC sector has led to production cuts in many memory chips, as consumer electronics make up most demand in that sector. In December, many companies targeted promotional price cuts to take advantage of the holiday season as a time to digest excess inventory.  

So, it comes as a surprise that Samsung raised its NAND flash prices in the first half of December despite slow demand. With some of its NAND product lines, such as 3D NAND flash prices reaching 10%. Samsung isn’t the only manufacturer raising prices unexpectedly, either. Intel quietly increased the price of its 12th-generation Alder Lake processors by 10%. There are plans that other Intel CPU products will follow suit soon.  

Aside from raw material shortages and rising inflation costs, these price hikes are partly due to massive losses over 2022. Intel’s 10% price increase had been announced earlier in 2022 after the company lost $500 million due to shortages and deteriorating demand. It is likely that even with demand continuing to drop, companies will be raising prices on chips to offset losses.

These raised prices could curb excess stock from growing too fast. Though, that possibility is unlikely as most excess stock comes from older orders now just arriving. What it does do, however, is make selling excess stock a more attractive option, as buyers will be far more likely to buy components at discounted rates. Starting now, while excess stock is just arriving and price increases are mounting, it will help sellers offload faster with better prices.

The Biggest Threat to the Supply Chain in 2023 is a Worsening Shortage Despite Excess Stock Looming

Netherlands-based custom-parts manufacturer, Hubs surveyed industry professionals to determine the most significant risks to the global supply chain for 2023. The results are varied, but the most prominent concern is the worsening of the chip shortage.  

There is a myriad of ways the global semiconductor shortage could take a turn for the worse over 2023. Over the last few years, the world's shortage resulted from several supply chain disruptions. That could happen again. The top 5 disruptions are still affecting the supply chain.  

Raw material shortages, Covid-19, transportation and logistics issues, rising energy costs, and lack of manufacturing capacity are still present adversaries for manufacturers. Most of these troubles come from traditional corporate trends. Hubs detailed in its survey that pursuing short-term profit over long-term stability has been a significant factor in the shortage’s continued impact.  

“Traditionally, profit incentives have favored lean manufacturing models or just-in-time (JIT) manufacturing,” the Hubs report said. “While this approach has proven to reduce costs in the short term and boost efficiency, its vulnerabilities have become increasingly evident in the face of global crises.”  

The report's authors said, “where lean supply chains fail, resilient supply chains can adapt, ultimately decreasing the impacts of disruptions and keeping things up and running. A resilient supply chain is prepared for unforeseen disruptions, able to react and recover fast, and emerge stronger after the event…true resilience enables you to deal with and even benefit from disruptions.”  

According to Hubs authors, some of the best strategies to mitigate disruptions are supply chain monitoring, geographical diversification, and agile processes, among other flexible solutions. These solutions help form a foundation for resiliency, even in a glut. If 2023 is vulnerable to such disruptions, manufacturers must implement tools soon to gain that advantage.  

Thankfully, the steps to procure and start using tools that deliver such solutions, like supply chain monitoring, are simple. Datalynq is a market intelligence tool that can easily and quickly provide a comprehensive view of the global supply chain. Quotengine is a BOM management tool that can easily find up to 4,000 components per parts list when uploaded for one transaction. Sourcengine is one of the largest global e-commerce sites for electronic components where suppliers can sell products and excess inventory. That’s a handy tool during this time of excess and high-priced components.  

If 2023 is going to be another chaotic year for the global supply chain, there’s no better time to get a head start on turning it into something extraordinary.

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