21 Sep There is no Chip crisis
There is no chip crisis, and we at in4ma are serious about this, even many electronics manufacturers might disagree.
We just need to look at the IC Unit shipment growth, published by IC insights. There was a downturn of 6% from 2018 to 2019, long before anyone was talking about a shortage. Then came the corona pandemic and even in this year 2020, when many factories were on short-time work, some even closing the business for a certain time, the IC industry increased output by 8% and exceeded 2018 output again. Then end of 2020 the automotive industry started panicking as they wanted to ramp up production immediately not knowing that JIT is not possible in the semiconductor industry. It was not all semiconductors that were in high demand but in the majority mature (40-450nm) and legacy (>450nm) products for Analog, MCU and DSP which are less than 8% of all semiconductors.
But it was a beautiful way for many suppliers and distributors to jump on the waggon and increase prices and delivery times to give the impression that there was a general crisis. All these fancy procurement planning systems all in a sudden were fed with unreliably delivery dates. The reaction was easy: To have all components in storage, the buyers of the electronics manufacturers started ordering the full BOM all at once. Material inventories at EMS companies more than doubled in 2021 and increased another 25-30% in first half of 2022. Order books had a range of up to two years.
A fool who believes that this is real market demand. The market never jumps all in a sudden. We have been talking about this so often already, the bull whip effect. Many companies were caught in this trap and are now sitting on high inventories. At the same time, we see a strong increase in revenues in the EMS industry (see the in4ma survey of EMS revenues for 2022, published by EMSNOW) and this is not only price increases (~9%) but as well quantity increase (~13%). In a real shortage the supply is going down, instead IC manufacturers increased output in 2021 by 21.6% (IC Insights).
There has never been a real shortage of all semiconductors but just some special types and the automotive industry just yelling loudly. IC prices are already collapsing, and procurement managers still have many orders with long lead times in the pipeline. Shortly they will realize that they do not need all this stuff and at the same time distributors will try to show their “generosity” and deliver earlier than originally quoted but with fast payment. Many buyers are already planning to send these materials back to the suppliers. This is a wake-up call, you better get up.
The real macroeconomic problem for our industry is labour shortage, rising energy prices, dependency on supplies from China and the effects of the climate crisis. Microeconomic problems which need to be solved now is to get the material content of your revenues down by at least 2%, cut your inventories by more than 60% and invest in clever automation.
If you want to know more about this, meet us at the IPC/EEIA EMS Seminar on December 1st 2022 in Tallinn/Estonia, where we will explain the situation in detail.