The device manufacturing industry experienced chip shortage last year when the COVID-19 pandemic struck that halted almost all types of operations. Gartner’s, a research and advisory company, sees that this shortage will extend and recovery will begin by the second quarter of 2022.
“The semiconductor shortage will severely disrupt the supply chain and will constrain the production of many electronic equipment types in 2021,” said Kanishka Chauhan, principal research analyst at Gartner. “Foundries are increasing wafer prices, and in turn, chip companies are increasing device prices.”
According to Gartner, the chip shortage started primarily with devices, such as power management, display devices, and microcontrollers, fabricated on legacy nodes at 8-inch foundry fabs, which have a limited supply. The shortage has now extended to other devices, and there are capacity constraints and shortages for substrates, wire bonding, passives, materials, and testing, all of which are parts of the supply chain beyond chip fabs.
“These are highly commoditized industries with minimal flexibility or capacity to invest aggressively on short notice,” Gartner said.
Gartner crafted four key actions that original equipment manufacturers (OEM) can take to mitigate revenue loss as well as mitigate the risks of the global chip shortage.
Extend supply chain visibility. The chip shortage makes it essential for supply chain leaders to extend the supply chain visibility beyond the supplier to the silicon level, which will be critical in projecting supply constraints and bottlenecks and eventually, projecting when the crisis situation will improve.
Guarantee supply with companion model and/or preinvestments. OEMs with smaller and critical component requirements must look to partner with similar entities and approach chip foundries and/or OSAT players as a combined entity to gain some leverage. If scale allows, preinvesting in a commoditized part of the chip supply chain and/or foundries could guarantee the company a long-term supply.
Track leading indicators. While no relevant parameter by itself will project how the shortage situation will evolve, a combination of relevant parameters can help guide organizations in the right direction.
“Since the current chip shortage is a dynamic situation, it is essential to understand how it changes on a continuous basis,” said Gaurav Gupta, research vice president at Gartner. “Tracking leading indicators, such as capital investments, inventory index, and semiconductor industry revenue growth projections as an early indicator of inventory situations can help organizations stay updated on the issue and see how the overall industry is growing.”
Diversify supplier base. Qualifying a different source of chips and/or OSAT partner will require additional work and investment, but it would go a long way in reducing risk. Creating strategic and tight relationships with distributors, resellers and traders can help with finding the small volume for urgent components.