How Suppliers and Designers Can Prepare for a Supply Chain Comeback
The pandemic dealt a sizable blow to the semiconductor industry. Here's how the rebound might look.
The semiconductor industry was especially hard-hit by the COVID-19 pandemic, and it didn't help that some sectors were already struggling before the health crisis. A few months ago, All About Circuits addressed when the semiconductor industry would bounce back from major supply chain disruptions, but we haven't yet assessed how that rebound might happen.
Here's a review of the effects of the virus on the semiconductor supply chain and what the industry's comeback may look like.
The Early Effects of COVID-19 on the Industry
Analysts at Z2Data recently examined what factors combined to create challenges for semiconductor manufacturers.
Some of the products experiencing rising lead times. Image used courtesy of Z2Data
Their data, along with that from McKinsey & Company, forecast that the semiconductor industry will eventually make a strong recovery, even as production slows.
Component Slow Down Throughout Asia
What were the early impacts of the pandemic across the industry, though? While much of the Western world classified semiconductor companies as an essential service, allowing them to remain open, others slowed down significantly.
One of the issues was that many major supply hubs for electronic and mechanical components went into lockdowns early. China produces a quarter of all capacitors, 44% of thyristors, and 13% of memory components globally. The country started its lockdown in late January, forcing nonessential workers to stay home.
Map of COVID-19 lock-down statuses and industry manufacturing sites. Image used courtesy of Z2Data
Japan and Taiwan are two other leading manufacturing destinations for semiconductors. However, Japan only recommended closures. Taiwan did not have widespread business shutdowns and recorded less than 500 cases of COVID-19 so far.
Production Moved Closer to Home
For some companies, bouncing back meant bringing operations closer to home. This was the rationale behind the U.S. government's push for Intel, Samsung, and TSMC to build domestic chip fabs.
Rendering of TSMC's Fab 18, a 5nm production facility. Image used courtesy of TSMC
Taiwan Semiconductor Manufacturing Company (TSMC) plans to do that soon by opening a location in Arizona. Analysts believe that choice will strengthen the company's global supply chain.
Varying Lead Times
Parts sourcing hit another snag as COVID-19 affected lead times for some products. According to Z2Data, ceramic capacitors saw lead times increased to nearly 20 weeks in February, May, and June of this year. Similarly, lead times for discrete semiconductors rose to more than 10 weeks from February through June.
Chart of how lead times increased for capacitors since the onset of COVID-19. Image used courtesy of Z2Data
On a positive note, the lead times for memory products remained stable.
Chart of how leads times have remained fairly constant with memory components. Image used courtesy of Z2Data
The report notes that Taiwan is a primary provider of hard disk drives. Thus, a possible resurgence of the virus in Taiwan could have a detrimental effect on lead times.
Demand for Medical Devices Spike
It's no secret that the medical industry has experienced an ongoing shortage of parts for essential medical supplies—namely, for ventilators.
To address this issue in Taiwan, the country's UMC semiconductor brand opted to shorten the lead times for certain semiconductor parts used in ventilators. That choice cut the timeframe for those components from approximately two months to just over a month.
Short on parts, many designers around the world have resorted to open-source designs to build their own ventilators using readily-available equipment.
An open-source ventilator design based on CPAP devices. Image used courtesy of Github
The demand for semiconductor components in medical devices was already high before COVID-19 impacted the world, particularly for mobile health devices. Estimates projected the mobile health market to surpass $20 billion by 2019.
How Designers Can Avoid Sourcing Setbacks
Designers who need semiconductor parts must communicate early and often with providers to get accurate estimates about lead times. They must also clarify the nature of their projects. For example, companies may prioritize those working on medical devices and get them their parts sooner.
Z2Data's analysts identified a possible correlation between increased lead times and tighter government restrictions, making it crucial to continually monitor government comments on supply chains.
Monitor Price Fluctuations
The report from Z2Data also highlighted price changes occurring during COVID-19. However, the analysts noted that the virus was not the sole factor in fluctuations. (They also commented that price differences often exist between distributors' publicly quoted prices and the private arrangements made with customers.)
The fluctuation of memory battery prices. Image used courtesy of Z2Data
As an example, Z2Data's statistics showed decreased hard disk costs since the pandemic began but indicated an increase in blade-type power connector contacts.
Prices also rose for D-sub connector terminators, but only from mid-April through June. The costs of variable inductors and memory batteries shifted to show an increase during the coronavirus, but the uptick varied over time.
Those sourcing parts should keep in mind that the price of parts at the onset of a project may vary notably from the price at the time of ordering.
Watch Case Spikes in Suppliers' Regions and Order Bulk
Design teams ordering semiconductor components should be aware of where manufacturing facilities are located and watch for possible case spikes in those regions. This planning can help project leaders to diversify how they source parts and avoid delays from sudden outbreaks. Design teams may also need to adjust their budgets, especially if price increases seem long term.
An optimistic forecast from McKinsey & Company in which some industries recover to pre-pandemic levels by 2021. Image used courtesy of McKinsey & Company
Designers might investigate bulk discounts. Doing so can side-step the concern of price fluctuations. Relatedly, be aware that some companies prioritize serving their biggest customers.
While the trajectory of the COVID-19 pandemic is somewhat unpredictable, being proactive—both on the part of suppliers and customers—can help design teams avoid supply chain holdups and speed time to market.
Learn More About an Evolving Supply Chain at Industry Tech Days
All About Circuits' Industry Tech Days will delve even deeper into how COVID-19 has affected the silicon supply chain. Here are some sessions that can help you learn more: