For a pandemic-ravaged era, Apple posted an incredible 54% increase in year-to-year revenue in Q2 2021. However, the leading smartphone manufacturer’s fairy tale run could hit a roadblock in the next quarter, no thanks to the global electronic component shortage. As a result, the company anticipated its revenue could fall short of projection by up to $4 billion in Q3.
As much as Apple’s iPad and iPhone are surging in demand, it’s facing a tough time producing adequate numbers for the awaiting customers. Still, Apple did considerably well as that the semiconductor crisis begins as early as February 2021. Other smaller OEM manufacturers may not share the same fate as the average component lead time skyrockets to 15 weeks.
What Causes the Global Chip Shortage?
The Covid-19 pandemic is largely to blame for the predicament suffered by industries. The global health crisis has sent residents confined to their homes most of the time. As people spent more time indoor, purchases of gadgets like smartphones, tablets, and laptops surges. According to Fortune.com, PC and laptop sales charted an all-time high record since 2014.
The pandemic-driven demands have caused manufacturers to increase their orders of semiconductor components. Unfortunately, chipmakers struggle to expand their production capacity to meet the drastic demand surge. As a result, basic components that are readily available are now facing months of lead time. More advanced components are reportedly tagged with a one-year lead time.
Perhaps, the US-China trade war is partly responsible for the chip crisis experienced today. The Trump admin imposed restrictions on China’s largest chipmaker, SMIC, leaving American companies no choice but to turn to TSMC and other competitors.
It appears that the shortage isn’t only caused by insufficient chip production capacity. Arista CEO Jayshree Ullal claimed that the component shortage faced by the company is also contributed by wafer and substrate shortage. Thus, it is a problem caused by the sum of a few underlying factors.
The current component shortage crisis isn’t constrained to any countries or regions. It is happening to the US, European and Asian countries alike. Even companies based in Shenzhen may have trouble getting hold of some components despite the city being the global hub for electronic parts.
How Does It Impact Industries?
Apple isn’t the only company that’s feeling the brunt of components scarcity. Apparently, automotive manufacturers are the first in line hit by the lack of electronic components. Nissan opted to omit its navigational system on thousands of cars because it can’t find the chips needed. US carmaker GM warned that its 2021 profit could fall short of $2 billion due to the component shortage.
Automotive giants like Ford, Peugeot, BMW, and Volkswagen are also not spared from the supply chain issue. Some carmakers resorted to allocating the chips on fast-selling models. Peugeot reverts to the analog speedometer for its 308 series as it couldn’t source the chip for the digital version. TSMC, which makes most of the chips needed by the automotive industry, increases its capacity by 60% this year to make up for the shortage.
Cars and smartphones take up a large portion of semiconductor component demands, but the current bottleneck is prevalent across industries. For example, Sony is facing difficulty delivering its latest PS5 to avid gamers as it struggles to get hold of electronic components that power the gaming console.
Some low-tech products are expected to be spared from the ordeal but are facing the same predicament as high-tech manufacturers. CSSI International, a company that produces soap dispensing booths for pets, is also struggling with chip shortages.
How Long Will The Shortage Persist?
The lingering question on the stakeholders’ minds is when will the lead time returns to acceptable normalcy. By normalcy, it means basic components like resistors and capacitors are shipped within days, and advanced chips like microcontrollers have a maximum wait time of not more than 12 weeks.
So, when will industries get their much-needed chips again?
Despite ramping up its capacity, TSMC CEO Mr. C.C. Wei doesn’t see the light at the end of the tunnel at least until 2022. Reinhard Ploss, the CEO of Infineon, echoed the sentiment that the imbalance of supply and demand will only be resolved by 2022. Glenn O’Donnell, VP of Forrester, is less optimistic with his forecast that the current crisis could drag on into 2023.
Key industry stakeholders agreed that companies worldwide would continue to grapple with long lead times and price hikes for electronic components procured in Shenzhen or other parts of the world. This is a problem with no short-term solution in sight.
Smaller companies are at a disadvantage as larger firms have the economy of scale to get ahead in the order queue. For consumers, it means months before they start receiving their PS5 or a brand new car with all the sophisticated gadgets promised.
Mitigation Strategies To Overcome Component Shortage
Being the first to suffer, automakers have responded with strategies that could be valuable lessons for other affected companies. For example, Nissan’s move of omitting non-essential modules ensures that production does not grind to a halt just because of a few hard-to-get components. Focusing the scarce resources on profitable and fast-moving products is also a move that benefits smaller companies.
Mitigating component shortage requires close collaboration between the product designer, procurement, marketing, and other departments. In addition, companies need to communicate how they deal with the component shortage to their customers and provide contingency plans.
Internally, hardware designers need to actively seek replacement components, even if it means having downgrading a powerful microcontroller to a more basic replacement. If the electronics are not essential in your product, consider taking a leaf from Nissan and goes without it.
You’ll need to rethink the supply chain, particularly how and when you start placing orders. Long-lead time items need to be identified and procured much earlier than pre-existing schedule. For example, you’ll want to pre-order 52-weeks lead time components right now and in bulk to create a safety buffer.
It’s also the best time to work with an electronic component sourcing vendor like ICS and tap into our existing network.