Supply crunch to continue – James Carbone

Last year was no picnic for purchasers buying passives and discretes and 2018 is looking like it will be challenging as well.

Electronics purchasers say buying conditions for many passives and discretes have gone from bad to worse as lead times that stretched to more than 70 weeks for some parts and component manufacturers are raising prices.

“Market conditions only continue to erode,” said Frank Crispigna, vice president, supply chain for electronics manufacturing services company KeyTronicEMS, based in Spokane Valley, Wash. “We now have electronic original component manufacturers that are not committing to deliver orders until 2019, while others have ceased accepting purchase orders for their parts,” Crispigna said in early January. Some of these manufacturers include Rohm, Panasonic, Kemet, TDK and Vishay, he said.

Lead times for many components remain long. Omron sensors are now in excess of 45 weeks. Other impacted commodities include fixed resistors and resistor networks from Rohm, Vishay and Panasonic. Parts from the manufacturers are either on allocation or constrained, according to Crispigna.

Stephanie Martin, senior vice president global supply for EMS provider Vexos, based in Markham, Ont., Canada said the electronics supply market is “worse than it was earlier in 2017 and continues to worsen. Manufacturers are running at 95 per cent or more capacity” but there is not enough capacity to meet demand, she said. She said her company is having the most trouble with resistors, multilayer ceramic capacitors (MLCC) and discrete semiconductors. Lead times for CRCW series of resistors from Vishay are more than 70 weeks and the manufacturer canceled orders and is now rebooking for 2018. Lead times for a similar part from Rohm are out over 40 weeks and Yageo’s lead times are more than 25 weeks, said Martin. Panasonic’s ERJ series resistors are on allocation.

She said the problem is not limited to resistors and MLCCs. “We are seeing some problems with sensors, diodes, and some LEDs.”

Because component lead times have stretched, the average lead time to procure a bill of materials is over 20 weeks, she said.

Besides long lead times buyers are facing price increases. “We had been successful in refusing them up to now,” said Crispigna. “Some of the increases are very large.”

“We’re seeing price increases on the number of different product lines,” said Martin. Multilayer ceramic capacitors are in full market allocation and prices have increased 10-25 per cent for some MLCCs, said Martin. Resistor prices have increased 10-15 per cent.

More capacity needed Electronic component supply is so tight because, while component manufacturers saw the increase in demand last year, they did not initially add capacity, said Crispigna. He added that mergers and acquisitions in the electronics industry in recent years have also contributed to serious supply issues.

“Many of the acquired companies’ manufacturing facilities were shuttered and folded into the acquiring companies’ existing facilities in order to increase margins through operational efficiencies,” said Crispigna.

Increases in demand from the auto industry for electronics components is “another major factor in the electronics market crisis,” he said. There has been “a boom in electronic componentry that is used in the automotive industry,” said Crispigna. Automobiles and trucks are equipped with new electronic systems that require “large quantities of electronic components. This consumption has broken what was an already overburdened supply chain,” he said.

Martin agrees that the auto industry is a major reason for the current supply crunch. She said in addition to increasing electronics content in vehicles, automakers had a substantial increase in demand for cars being sold in third world countries. As a result, component demand by automakers increased sharply.

Because of such strong demand from automakers and their suppliers, component manufacturers are “pulling production of components that normally supported commercial or industrial business and shifted production to build automotive components,” said Martin. That has impacted the amount of parts available for commercial and industrial customers, she said.

Components manufacturers say increased demand for passives and other parts from the automotive segment is not the only reason that some components are in short supply. Dave Valletta, executive vice president worldwide sales for Vishay Intertechnology, based in Malvern, Pa., said automotive was a “catalyst,” but demand was also strong from industrial equipment manufacturers and computer makers. Although notebook computer business “leveled off”, there was still plenty of demand for components by computer makers. Unexpected strong demand from several key customer segments and the lack of investment in new capacity in recent years by component manufacturers resulted in shortages of some passives and discrete semiconductors.

Dealing with shortages

To deal with the supply crunch, buyers are employing several strategies and tactics including looking for alternate suppliers, identifying substitute parts for shortage components and purchasing parts from more distributors than usual, both franchised and independent.

Martin said Vexos is identifying component manufacturers that don’t supply to the auto industry in an effort to find needed parts.

She said Vexos spoke with some manufacturers that don’t do business with automotive manufacturers and is trying to shift some of its OEM customers to those component manufacturers and “we are having some success there.” As an EMS provider, Vexos needs to get the approval of OEM customers if it wants to use components from a component manufacturer not on the OEM’s approved vendor list (AVL).

She said Vexos is also looking for smaller component manufacturers in Asia. “We are looking at third and fourth tier Asian lines. We are trying to get some of those qualified.”

She added Vexos’ strategic sourcing team is spending more time assisting tactical buyers to find parts. “We are also utilizing our component engineering continuously. We had to add component engineering services to support all the alternate sourcing that we need when we run into problems,” said Martin.

Vexos is also qualifying more independent distributors in an effort to locate shortage parts.

Crispigna says KeyTronicEMS uses its “preferred franchised distribution partners” whenever possible. “Given these awful market conditions, we have frequently been forced to either pursue available supply from alternate sources, or had to present our customers with fit/form/function (alternate components) that had available supply,” said Crispigna.

In such supply conditions, counterfeit parts are a concern. “To ensure we minimize the risks of procuring counterfeit components,” KeyTronicEMS uses preferred independent distributors when its preferred franchised partners are unable to supply the EMS provider with a component. He noted that buying parts from independent distributors is always done with the approval of the OEM customer.

When will short supply end?

How long the current tight supply conditions will continue remains to be seen and will partially depend on to what degree demand increases. While it is hard to forecast demand, component manufacturers and distributors say they expect component demand from automotive and industrial Internet of Things segments will rise in 2018 and beyond. That should mean increasing demand for passives, including capacitors and resistors.

“Bourns continues to forecast high demand for its resistive products throughout Q1/ Q2 2018,” said Clement Shu, product line manager for resistors for Bourns, headquartered in Riverside, Calif.“

As a result of continued strong demand, some resistor suppliers are extending their lead times up to 50 weeks and “even as much as 80 weeks on certain resistor models and a few suppliers are on allocation for chip resistors,” he said.

However, growth in demand may be slower in 2018 than 2017. “We anticipate growth will slow in 2018, although it will still climb at a steady rate,” said Shu. He said besides chip resistors Bourns is forecasting an increase in demand for shunt resistors in automotive and server applications. “We have also seen lead times extended because of higher demand,” said Shu.

He added if demand stays strong and resistor manufacturers are at full capacity, “we expect a few of the major suppliers will continue to increase their prices.” He added one major supplier in chip resistors increased their price twice in 2017, which constituted a more than 30 percent increase from 2016.”

Shu said Bourns’ strategy is to maintain its existing cost to “support our customers’ growing demand.”