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Applying our perspective to industry topics and trends

February 25, 2022

Navigating the Semiconductor Chip Shortage: 2022’s Outlook

As the digital landscape evolves, semiconductor chips are more needed than ever. Unfortunately, the current semiconductor shortage is impacting every industry that runs on these essential materials—from automotive to consumer electronics to lighting and LEDs and beyond.

After 2021’s supply chain challenges, many are looking to 2022 to be the year where the shortage is solved. But solving this overwhelming problem won’t be easy. The answer to the chip shortage isn’t just simply ‘make more chips’—as this is more difficult than it seems. It takes many years and billions of dollars to build semiconductor fabrication facilities, while chips are becoming more complex. The subsequent labor shortage is also a contributing factor, as skilled workers are in short supply. Semiconductor manufacturers now must be able to navigate the ongoing shortage and ensure they do everything possible to maintain efficient production along the way.

The Current State of the Shortage

A Semiconductor Supply Chain report from the U.S. Department of Commerce released in January 2022 revealed an alarming shortage of chips—demand for them was 17% higher in 2021 than two years prior. According to the U.S. government, median inventory has fallen from 40 days to fewer than 5 days. In a new report, Deloitte says it expects the semiconductor shortage to last until early 2023. And today, customers are still waiting 10 to 20 weeks.

Global semiconductor sales are predicted to rise. Sales increased by 20% in 2021, and are predicted to rise a further 9% to $574 billion in 2022, according to the Semiconductor Industry Association. The 300mm silicon wafer market is expected to reach $10.570 billion by the end of 2027, growing at a CAGR of 5.1% over the next five years. The shortage is also driving fresh investment in the industry as demand grows. Deloitte predicts venture capital firms globally will invest $6+ billion in semiconductor companies in 2022—3X greater than every year between 2000 and 2016.

Maintaining productivity and efficiency through the ongoing supply chain crisis has proved crucial for fabs. Below are three tips on how to better navigate the shortage—no matter how long it lasts.

Tip 1: Optimize the Supply Chain

Semiconductor supply chains span research and development, production, and distribution for end-use. All of these areas must come together and flow smoothly in order for the supply chain to remain productive and efficient. However, today, it is drastically slowing. The manufacturing part has been hit the hardest, as there is a severe shortage of parts. Some organizations are working to mitigate the impact of broad electronics industry shortages to its production output through proactive and disciplined supply chain and inventory management strategies. By closely monitoring the situation and striving to meet current confirmed orders, manufacturers can supply their customers. Visibility is critical to ensuring a productive supply chain, so manufacturers must have the proper tools in place to increase insight into every production line from beginning to end.

When optimizing the supply chain, it’s essential to plan and prepare. The fab should communicate all changes and remain flexible in the case of slowdowns. Diverse manufacturing locations for those who are fortunate enough to have them help distribute risk and ensure they can continue to serve customers worldwide. Customers, on their end, should also be flexible and consider different options, and the organization can work with them to determine their options.

Tip 2: Understand Current Challenges

It’s essential to keep up with what’s happening in the supply chain, as every day brings changes. Some companies are working with customers to understand demand trends so they can adjust their expectations accordingly. With certain parts remaining in short supply, organizations can expect longer lead times and should communicate them to their customers.

The ongoing shortage has encouraged tech and political leaders to try to improve the U.S.’s stake in the microprocessor business, as it’s moved to Asia. The shortage is also shining a light on the current state of U.S. manufacturing and how it has also largely moved out of the country. But better news is on the horizon. With the acknowledgement that the U.S. needs more fabs ‘in-house,’ organizations like Intel, Samsung, and Texas Instruments have said they are building new multi-billion dollar fabs in coming years. The European Union has also announced a $48 billion plan to overcome its dependency on Asian computer chip makers.

The complexities of the semiconductor production process also play a large part in the slowdown simply by nature. Typical lead times can be greater than four months for some products that are already established in a manufacturing line—and can be up to 14 months now for some key components. But even with changes, lead times still increase. For example, when moving product to another manufacturer some chips contain manufacturer-specific intellectual property that need licensing, causing a slowdown. Patience, awareness, and optimism are key when rearranging processes in order to maintain efficient production.

Tip 3: Work with the Right Partner

The semiconductor supply chain’s problems are much too great for one organization or government to solve. But in order to ensure you are in the best possible situation for maintaining efficient fabrication—and handling the eventual return to normalcy—it is critical to partner with an experienced organization that knows the ins and outs of the industry.

Applied Energy Systems has responded to our specific supply chain issues by dramatically increasing our inventory levels in advance of orders using predictive modeling and customer forecasts. Additionally, we have added significantly to our technical staff including mechanical, electrical, and software engineers to support our increased demand. AES is in an extremely strong financial position to support the increased demand as we have been a profitable corporation for over 25 years running.

Semiconductor fabrication is at mission-critical levels today. Click here to learn more about how AES can help with your growth challenges.


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