The Global Electronics supply chain is in a strange place right now. Ostensibly the world’s economy is slowing down with massive unemployment all over and surging Covid cases in many parts of the world. Despite that, if you try to buy many types of electronic components you will find lead times extending into next year and outright shortages of all kinds of components.
There are a few things going on here. First, despite the lockdowns, or maybe because of them, people are still buying a lot of electronics. There are definite signs that consumers have been stocking up on gadgets as they fit out their Zoom lairs. It is also the season of the year when all the new phones come out ahead of Christmas and Chinese New Year. Components are always tight around this time as the big handset and PC companies gear up their production for Holiday orders. As one component vendor told us “If your name is not Apple, you probably can’t get that part.”
On top of that, many suppliers are operating under capacity constraints as a result of Covid shutdowns. China has largely opened up again, but many companies there are still racing to catch up after months of being closed.
This has not only caused a direct shortage, but it has had a large indirect impact as large component buyers worried about shortages started “double ordering” a few months back. That is to say, they ordered more than they really thought they would need to make sure they were at the head of the line when parts get rationed out. This problem occurs every few years, but is particularly acute this year for all the standard 2020 reasons.
On top of that, there is Huawei. Huawei ordered as many components as they could ahead of the US sanctions. There are all kinds of examples of this from TSMC all the way down. And of course, their stockpiling fed into the double ordering panic above.
Making matters worse, every company we speak to in China is worried that they are next. This is not wholly rational, but then again, Uncertainty is the order of the day. So there are dozens of large Chinese companies stockpiling parts, just in case they come under the scrutiny of the Eye of the US Government. And of course, this feeds into all the factors above.
One of the hardest parts of all this is that it is so hard to predict. The Global Electronics Supply Chain is complicated. Take a semiconductor as an example. The part is likely produced in Taiwan or Korea, then sent to Malaysia for testing, then sent to Singapore for packaging, then sent to China for assembly into a module. That module may then be sent back for testing before sent to China again for final assembly into a phone or other device. If there is a shortage of some part or factory capacity anywhere along this chain, the whole thing backs up. The industry has gotten pretty good about smoothing out these wrinkles, but this year we are pushing all the bounds.
We have found that a lot of the time it is the most ignored, taken-for-granted parts that are in the shortest supply. How often do you think of the plastic packaging or substrate in which a semiconductor sits? Not often? Don’t feel bad, a lot of supply chain people do not think of these much either. So of course, those are out of stock everywhere right now, adding a month or more to some timelines.
The strangest part is that in all of this discussion of supply shortages there is little thought given to the demand side. Maybe the economy will remain strong and these supply shortages will go away. Or maybe, we are just seeing a cascading series of temporary supply constrictions, and all the woes of 2020 finally catch up with the broader economy. In years past, double ordering usually ended poorly for the company that temporarily benefited from tight supply. All too often those buyers fighting to jump the queue ended up canceling orders at the last minute, leaving mountains of supplier inventories and financial woe in their wake. Our best guess is that we end up somewhere in between those two extremes. There are some legitimate reasons that capacity is scarce right now, but there are equally many cases of ephemeral demand. So spare a thought for your operations team, and maybe have them call all your suppliers again, for every component. Just to double check.
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