But the transformation is far from uniform. Lead times for some advanced chips needed for medical equipment, telecommunications and cybersecurity systems are around 52 weeks, compared with the previous average of 27 weeks, according to Everstream.
Auto companies hit hard by the pandemic initially canceled parts orders, were caught off guard by rising demand, and resumed production with no excess inventory and little negotiating leverage. Modern cars can have thousands of chips, and future models may be equipped with more computing power, thanks to more advanced in-vehicle software and self-driving features.
“Any automotive segment — or competing with automotive capacity — remains highly constrained,” said Jeff Caldwell, director of global supply management at MasterWorks Electronics, a maker of printed circuit boards, cables and other electronics. Actify CEO Dave Opsahl, whose company sells operations management software to auto companies, said automakers’ chip supply hasn’t improved, and in fact shortages of raw materials such as resin and steel, as well as labor, have gotten worse.
Frank Cavallaro, chief executive of A2 Global, a company that finds, sources and tests electronic components for manufacturers, said the current situation reflects the complexity of the chip market and supply chain. Many end products include numerous semiconductor components from around the world, and also require packaging of equipment by companies mostly in China. “It’s macro, it’s micro, it depends on individual regions,” he said.
Everstream’s Gerdman said the emergence of new BA5 Covid variants in China has raised concerns about a draconian lockdown that could hamper production of chips and other products. Uncertainty about future capacity and geopolitical restrictions on chip exports make it difficult to plan ahead, she added.
The geopolitical situation is likely to significantly increase the global capacity to produce advanced chips. Legislation passed by the U.S. Senate would provide $52 billion in subsidies to increase domestic chip production. The U.S. share of global chip production has fallen from 37 percent in the 1980s to 12 percent today. But while backers of the subsidy have cited chip shortages, most of the money will go to reflow production of advanced chips. The country’s most advanced technology, from Intel, lags behind TSMC, a sign of a potential weakness in U.S. access to technology that promises to be critical to everything from artificial intelligence to biotechnology to 5G.
The current city center may only lead to instability downstream of the semiconductor supply chain. “Unfortunately, the economic slowdown has created the risk of some suppliers running into financial distress or a liquidity crunch without access to capital,” said Bindiya Vakil, CEO of Resilinc, a company that sells AI-based supply chain management tools. Say. “This creates a lot of risk to the supply situation. Companies should really monitor their suppliers’ financials and work closely with suppliers to help them get liquidity by offering them favorable payment terms, advance payments, etc.”
The cyclical nature of the semiconductor industry Even some, including Syed Alam, who leads the global semiconductor practice at consulting firm Accenture, foresee shortages turning into gluts. “By 2023, there is growing concern about the possibility of overcapacity in chip production,” he said. “Companies need to focus on building agile and resilient supply chains over the long term and be prepared to respond.”
