An improved overall global economy since the recession in 2007-2009 has contributed to the increasing health of the global electronics industry. Semiconductor demand is frequently looked at as an industry health indicator, as they are found in most technology, and therefore an increase in their demand translates to an increase in demand for electronics and associated technology. After dipping over 30% in 2009, semiconductors have experienced record revenue numbers since 2013.
As the growth rate of PCs as slowed, semiconductor manufacturers have had to expand into alternative markets; the wireless and mobile technology, automotive, medical, and renewable energy market sectors have provided alternative means of revenue. The surge in demand for all things to be connected, more commonly known as, “the internet of things”, has increased the number of electronics woven into consumers’ everyday lives. Explosive demand for Smartphones as well as implementation of computer devices for safety and comfort features in automobiles has allowed the health of the industry to remain strong despite the decline in PC sales.
In fact, 2013 sales for semiconductors reached an all-time high, with logic and memory semiconductors contributing significantly to these increases. And, according to the Semiconductor Industry Association (SIA), 2014 is trending ahead of last year – to the tune of 11.5% year over year. (Click here to see the full story)
What does this mean for electronics manufacturers? Enter Adam Smith’s good-ole-supply-and-demand. Increasing demand for semiconductors has led to longer lead times for many of the top manufacturers of semiconductors in the first half of 2014. In fact, ACDi received notification from several of the top manufacturers earlier this year of temporary lead-time extensions for certain product groups. One cited ‘strong LTE mobile infrastructure deployment in China’ and ‘continued growth in global Smartphone demand’ as the cause. “We’re definitely seeing a trend in some IC’s where lead-times are quoted at 12, 16, even 26 weeks. The global market is definitely affecting the industry at our level,” said Lenny Sjoberg, Material Manager for ACDi.
While increased health of the semiconductors market is a positive economic indicator, a 26 week lead-time can be detrimental to near-term product launches and production schedules. And, while manufacturers are communicating supply should catch up with demand later this year, there are steps that you can take to mitigate near-term supply chain interruptions.
1) Place backlog well into 4Q’14. This will provide visibility of demand and product mix requirements, and will allow the manufacturers to have better visibility as they choose which product families to ramp up.
2) Set safety stock levels with your in-house or contract manufacturing partners. Having extra inventory of only critical parts allows added flexibility in the event of a demand spike, at a lower cost than full systems sitting on the shelf.
3) Perform BOM Scrub analysis with a tool such a Silicon Expert, especially for new product introductions (NPI). Know what parts are at risk, including lead-times, conflict materials and available real-time inventory. Also a good idea if production demand is expected to spike in the next 2-6 months.
In addition to the increased consumer demand, research suggests ongoing and newer government regulations, including the familiar RoHS and the newer Conflict Minerals, may also have an impact on long-term semiconductor supply. Learn more in our 3Q’14 newsletter scheduled to come out this September 2014.