The Price of Success | Semiconductor Shortages are Set to Continue

Lantek Corporation’s general manager, Frank Cervino

Lantek Corporation’s general manager, Frank Cervino, alerts purchasers that with the market booming and lead times still increasing, semiconductor shortages are set to continue

The semiconductor industry is in great health; earlier this year, worldwide semiconductor sales reached $31.9 billion. This figure, announced by the Semiconductor Industry Association, represents a 23 per cent increase compared to the same period in 2016. It seems the global semiconductor market has settled into a period of significant and steady growth, with the Americas leading the way by posting an increase of 30 per cent.

This is good news for distributors. After slow growth for the past couple of years, this sudden boom has moved the sector into positive territory, but for OEMs and CEMs, it isn’t necessarily good news.

Longer lead times

A recent distribution report stated that sales from industrial customers rose nearly 30 per cent last year. This, coupled with strong demand from the automotive sector and the continued implementation of internet of things technologies has seen lead times increase, with franchise channels suffering from widespread shortages.

This has impacted supply chains, not just logistically, but economically as well, because the cost of certain product lines is rising. Add instances of allocation into the mix and it compounds stress and price fluctuation in an already volatile marketplace. It’s an environment that many in the industry have not seen in nearly a decade.

Research is necessary

This period of shortages is expected to continue until late 2018, especially in the ultra-competitive memory sector. Thanks to demand outstripping supply and the resulting inflationary pricing, purchasers will have to conduct ample research to extract value when locking down quantities of memory products. A singular approach to supply chain management may quickly become an inefficient model to follow.

At base level, extended lead times are a consequence of demand outstripping supply, however, there is another factor at work here. After a relatively flat period, many semiconductor manufacturers have failed to invest in improving productivity and capacity levels. Because of this, several manufacturers have suffered an uneasy transition to new generation product lines and have been caught off-guard by a sudden spike in requests.

This in turn has caused problems for authorized distributors and those purchasing departments that rely solely on these channels. Again, this is easing people away from traditional distribution and increasing their spending with reputable independent distributors.

Independent growth

The electronics industry is large enough to support both authorized and independent distributors, especially during periods of stress. In this market, it is beneficial to work with companies of both kinds and benefit from their respective strengths. Independent distributors, for example, can help secure a supply chain by scheduling orders over a twelve-month period, fixing pricing and guaranteeing stock in one swoop.

Overall, although the market may be growing and there are positives associated with this, the reality is that many of those at the end of the funnel are feeling the pinch. For the most cost-effective purchasing channels, a broad supply chain may help to avoid lead time problems and price spikes.