Manufacturers Face Extended Lead Times Due To Micro-chip Shortage.
Technology is changing how we live and work. From the smartphones in our pockets to datacentres powering the internet, inside are tiny pieces of tech that make it all possible: semiconductors. Tiny electronic switches, also known as transistors, run computations inside our computers. Manufacturing transistors out of silicon allowed them to be made small enough to fit on a microchip, resulting to a rush of gadgets and tech products that have become smaller and smarter by the year.
Why is the world short of Microchips?
Demand of the semiconductor chips has now exceeded supply, affecting more than 169 industries. This has resulted in major shortages, long lead times and queues for video game consoles, graphics cards, cars, and many other products.The COVID-19 pandemic has caused a supply/demand imbalance. The global lockdowns led to chip production facilities being shut down, leading to the depletion of stocks, just at the time people had to stay at home and upgrade their electronic devices, such as computers and monitors to work from home.
What made matters worse in 2020 China's biggest chip manufacturer, Semiconductor Manufacturing International Corporation (SMIC) was faced with US government restrictions which then in turn made it harder for them to sell to companies with American ties. This resulted in companies using other manufacturing plants that were already at maximum, such as Samsung and Taiwan Semiconductor Manufacturing Company Limited (TSMC). In 2020, TSMC alone accounted for more than 50% of the global market of semiconductor chips, whereas according to the Semiconductor Industry Association the US now only accounts for 12 per cent of global manufacturing of chips. Just to make matters worse, natural disasters struck earlier this year and Taiwan experienced its worst drought in more than half a century, which led to further problems among the chip manufacturers as they use large amounts of ultra-pure water to clean the factories and wafers containing crystalline silicon. Texas factories were also forced to shut down due to a winter storm earlier this year and a fire at a plant in Japan also caused similar delays.
What does the foreseeable future look like?
Governments globally are promoting self-sufficiency and are investing more into semiconductor manufacturing and research. US President Joe Biden is looking to secure $50b in government funding and seeks partnerships with the largest manufacturers, TSMC being one of them. Biden also has the difficult decision of targeting which industries require the money. Car makers in the U.S warn of a potential devasting shortfall if their industry is not given priority.
The European Union also has plans to develop and manufacture the world’s most advanced semiconductors by 2030. Whilst mature semiconductors are already produced in Europe, officials want the region to manufacture chips that are faster than the most efficient currently made by industry leaders.
Marvell Technology CEO has stated that the global chip shortage could extend through to 2022 if it stays business as usual. Although, chip manufacturers are also tackling the shortage head on. Intel announced in March 2021 ‘it would double down on manufacturing and invest $20 billion in two new chip factories in Arizona.’ Whilst several chip factories have plans to extend the factory capacity, many plans may not take effect until 2023/2024 as in some cases it can take 18-24 months to begin a new factory plant.
What industries have been affected?
Automotive Sector
The automotive sector has been hit the worst. Cars account for 15% of global chip production. Sales of used-cars are up globally, for instance, because new vehicles on average have 1,400 and 3000 chips which are now in short supply. Car manufacturers such as Toyota, Ford and Volvo have temporarily halted or slowed production at their factories due to the semiconductor shortages. Ford expects to lose 1.1 million units of production in 2021 as a result of the semiconductor shortage. Companies such as Volkswagen and Jaguar Land Rover have also shut down factories, laid off workers and slashed vehicle production.
Appliance and Technology products
Samsung announced that the chip shortage is hitting television and appliance production, while LG admitted the shortage is a risk. The shortage is also to affect production numbers of toothbrushes, tumble dryers, washing machines, as well as many other products that we rely on such as smart phones. Mobile manufacturers are now starting to feel the impact of the global chip shortage with Apple warning that the shortage could affect iPhone sales, who stockpiled critical components earlier on. As for gaming consoles, who knows how long gamers will continue to struggle to get their hands on the new Microsoft Xbox Series X and Sony PlayStation 5 systems.
Utility, Oil & Gas and Rail Industry
Microchip technologies support shipping, trucking, and storing of raw materials. The industries also use microchips for microcontrollers (MCUs), sensors, memory, automation, and navigation. New microchip technologies help with automation, electrification, digital connectivity, safety, and security.
Manufacturing Industry
The manufacturing industry also has been impacted by the shortages and the ever-increasing lead times within the industrial automation market are not showing any improvements. Industrial Automation manufacturers such as Allen Bradley, Schneider, and Siemens face quoting lead times of over 52 weeks on new items.
Semiconductors are used in virtually all graphics cards, temperature and safety sensors, high-end CPUs and even some power supplies. Without the critical semiconductor, many PCB’s cannot further in assembly production, many are put on hold because of the shortage, leaving many businesses and machinery lines without the critical electrical components.
A recent survey by the UK machine health monitoring specialist, Senseye revealed that machine failures are causing industrial facilities to lose an average of more than a day of production a month, costing hundreds of millions of dollars a year. Keeping stock of critical components to keep machinery up and running, and an updated review of inventory management, is required now more than ever with electrical component shortages. Businesses face costly breakdowns and machinery downtime by not holding back-up surplus items ready to install.
At NRwell, we experience this situation daily and we aim to provide spare parts and repairs as quickly as possible to minimise downtime. The issue of not holding surplus items that are critical to production is only made worse when the components are obsolete and hard-to-find.
We understand the stresses and costly situations of downtime machinery breakdowns can cause and the pressure put on maintenance teams to resolve them. Being specialised in the obsolete market, we make it is easier for companies and locate the hard-to-find spares for them. We want to prepare businesses for unwanted production down time and we advise companies to determine surplus relative to budget and scale and how likely a particular component may let you down.
The bottom line is: this will not get sorted overnight. With the pandemic accelerating the demand whilst in the middle of tech boom, for now we just cannot keep up. We now must adapt to the shortage and focus on purchasing surplus to keep the business running as usual.
Contact sales@nrwell.com today if you need help sourcing surplus stock.
Category: News
Posted: October 26, 2021
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