Automotive and industrials, yes; gaming consoles and servers, no. Recovery from the global semiconductor shortage is set to be uneven and skewered across sectors.
The global semiconductor shortage, having ‘wreaked havoc on global supply chains for the best part of two years, may now finally be heading for some reprieve according to experts. However, as Bain & Company notes, the recovery is set to be highly uneven; with some industries set to see improvement by the end of this year itself, while others may not improve significantly until at least 2024.
The consulting giant notes: “the automotive and industrial sectors, among the hardest hit by the chip shortage, will be the fastest to recover…we anticipate that supply bottlenecks in these sectors will begin to improve in late-2022 and early 2023.”
Their products rely most heavily on semiconductors in two categories – “leading-edge” 12-inch wafers and “lagging-edge” 6-inch and 8-inch wafers–that will see manufacturing capacity meaningfully increase over the next 9 to 12 months, thanks to new fabs coming online. These types of chips make up more than 90% of the semiconductors used by automotive and industrial companies. Further research has found that consumer electronics, depending primarily on 6-inch, 8-inch, or 12-inch wafers, are also set to rebound within the next year or so.
All isn’t rosy, however. Shortages are set to hamper several sectors through the next two-three years as well; such as gaming consoles or computer servers. Experts opine this is because as “demand for these products has jumped during the Covid-19 pandemic, the supply of “bleeding-edge” wafers has kept up, but production of the accompanying advanced substrate components has not.
These suppliers lack the financial resources to build their substrate factories fast enough to meet rising demand. The bleeding-edge chips reliant on these substrates make up nearly 50% of the semiconductors used in servers and more than half those used in gaming consoles.”
- Availability design: When sales plummet owing to supply shocks, companies usually redesign existing products in order to minimize and eliminate exposure to the component shortage. With the current shortage, this would require removing non-essential features, minimizing customization, qualifying parts from multiple suppliers, and creating newer products with available chips serving untapped market niches.
- Accommodating supply through demand manipulation: “Sales and marketing can play a critical role in responding to supply crunches. One of the most effective tactics is actively steering customers toward the company’s more widely available products, either by raising the price of products hit by the shortage or more heavily promoting the widely available ones.”
- Flexible resilience: Leading global players are continuously refining products and furthering resilience This process starts usually in the early stages of product development. Aspects that turn out to be crucial in this regard, such as reducing the number of parts; reusing components, standardizing design approaches; creating a flexible product architecture, and decoupling software and hardware are all crucial in this regard.
- Capabilities to look deeper into the supply chain: Bain reports, “enabled by digital tools, traceability allows companies to follow products as they move along the value chain and quickly glean exact information about the provenance of inputs and supplier sourcing practices. That data enables companies to make better predictions, run scenarios, and dynamically optimize operations.
Companies are also getting in front of potential shortages by establishing supply chain visibility systems to consistently gather real-time market intelligence on key pinch points across their components.”
- Investment in value chain innovations: In an era of increasing supply chain disruptions, an approach gaining an increasing amount of popularity involves firms paying suppliers to subsidize production capacities and guaranteeing agreed-upon volumes for buyers. Other approaches, such as automakers’ joining hands with silicon manufacturers or in-house semiconductor designs may also take off but will need redefining existing capabilities.