The last 3-5 months the market for electronic components has seen an increase in the demand for semiconductors to the extent that manufacturers cannot keep up. At EKTOS we have also observed increasing prices and longer lead times, in some cases up to 20 weeks in production volumes but in rare cases longer than one year.
Why is there a shortage in the first place?
Several factors are influencing the global production capacity of semiconductors. MarketWatch lists several market trends:
- The trend the past years have been to add electronics in more and more products, including products that were historically without electronics.
- The technology keeps evolving, microchips continue to get smaller, but the amount of factories (fabs) that are equipped for the latest production methods are not increasing by the same rate.
- When the global pandemic broke out the demand for user electronics increased dramatically which was the last straw.
Harvard Business Review adds geopolitical reasons and bad luck to the list:
- When the Trump administration tightened regulations on the sales of semiconductors to Chinese companies, the same companies responded by stocking up on microchips while American companies were cut off from chips produced by China’s Semiconductor Manufacturing International Corporation.
- In July and October 2020 two advanced Japanese factories had to shut down production due to fires at their facilities. One of the factories are still down.
In short, the supply chain has not been sufficiently robust to mitigate the risks and to keep up with the growing demand. This has led leaders in the US and the EU to conclude that it is necessary to build fabs locally. However, such efforts will not result in an increased capacity for another 3-5 years as fab construction is very capital intensive and advanced.
Developing new products in times of shortage
Currently, we experience that active components are affected to a higher degree, but a shortage of this scale is expected to influence other component groups. Alexander Liubimov, Business Director in EKTOS’ department of electronics development and design lists the steps he and his team are able to take in order to mitigate the situation, ”First of all it is important to communicate to our customers that increased lead time on components as well as price adjustments can be expected.” Alexander adds, “When possible, we design for second sourcing by having a few alternative processors in mind. This means that both hardware and software designs are created to be less dependent on processor-specific features and peripherals which allows for replacement of components without having to redesign the layout of the entire circuit board.” Alexander adds, “Another option is to implement SoC solutions that are more available, like ESP32, even when the rich set of features, like connectivity, is not used in the specific version of the product.”
First of all it is important to communicate to our customers that increased lead time on components as well as price adjustments can be expected. – Alexander Liubimov, Business Director
Alexander furthermore notes that the engineers have opened up to broader collaboration with a wider range of suppliers instead of relying on only one. Alexander explains, “We see very long lead times on ST processors and this affects many of EKTOS’ designs because we are an ST partner and have designed with ST processors for many years. Now we open more up for collaboration with other MCU vendors such as well-known companies like Microchip/Atmel and Silicon Labs as well as smaller vendors like Giga Devices, Holtek or Hycon.”
Even closer ties between development and production
In cases where production is not handled by EKTOS’ sister company, TECHTO Electronics, the development team has become more involved in the production phase by planning production earlier and, in some cases, by stocking up on components.
Jesper Holst, co-founder of TECHTO Electronics elaborates, “In this situation with component shortage, it is increasingly important to control the step from development into production, so we do not end up in a situation where product launch is delayed due to unavailable components. In several projects we have helped to source key components even before production was agreed in order to avoid delaying product launch.” Jesper Holst adds, “In TECHTO Electronics we encourage our customers to be planning ahead as much as possible and to maintain a precise and updated forecast for the coming year. It makes a difference if orders can be place 1-2 months earlier than before.”
It is increasingly important to control the step from development into production, [to avoid that] product launch is delayed due to unavailable components. – Jesper Holst, co-founder of TECHTO Electronics
Both in TECHTO Electronics and in EKTOS we monitor the situation, keep close contact with purchase departments, and stay updated on impact analysis.