In this article, NewPower Worldwide explores the underlying problems causing the semiconductor shortage and estimates the market will remain constrained well into 2023.
Did you know semiconductors are the world’s fourth most-traded product, trailing only crude oil, motor vehicle parts and refined oil. As semiconductor demand soars and the most significant shortage of our lifetime unfolds, the biggest question in boardrooms worldwide is when will this end? Unfortunately, with the unpredictability of material availability, freight costs, labor scarcity, container shortages and more, many believe we’re in for a long, painful recovery with the current conditions being the new normal well into 2023.
To better understand where the semiconductor shortage came from and why it’s here to stay, we have to turn back the clock. In 2020 the semiconductor industry was recovering from a recession and was trending towards a recovery. When Covid-19 arrived, the automotive sector forecasted a downturn in demand. As feared, sales dropped significantly in 2020, and automotive leaders canceled larger orders with semiconductor manufacturers. Surprisingly, automobile demand began to increase, but manufacturing capacity was no longer available because production had been allocated to the consumer electronics industry, which saw a surge during the pandemic. Demand for smartphones, tablets, laptops and game consoles depleted all relevant chip inventory and the semiconductor shortage was upon us.
Digging into the details, you’ll learn the semiconductor sector has a range of variables that further complicate the problem. Manufacturing a semiconductor is incredibly capital intensive, requiring unstable raw materials management and the supervision of high-value sensitive items. All this involves implementing specialized and tightly aligned logistics services to support each component of the semiconductor value chain. Compounding the problem, the semiconductor logistics ecosystem must cover almost every continent and country, many times in remote regions of the globe. Unfortunately, the world’s largest companies are learning the hard way they must adapt their existing supply chain process or be prepared to weather the financial repercussions of not doing so.
Lead times for many semiconductors are currently eclipsing one year. Automobile manufacturers worldwide have reduced output due to a lack of semiconductors, as reported widely in the news. Most have missed their 2021 goals and have hinted toward similar 2022 results. Unfortunately, the automobile industry is not alone. The chip shortage affects the electronics, medical, technology and networking equipment industries. Anyone with a product reliant on the semiconductor sector should prepare to deal with a constrained market well into 2023.