Chip Shortage Challenges

10/21/2021 | Silicon Labs | 4 Min Read

By Bob O'Donnell
President and Chief Analyst

TECHnalysis Research, LLC a market research firm that provides strategic consulting and market research services to the technology industry and professional financial community.

If you've browsed any web news site, watched TV or read a newspaper over the last month or two, it's easy to tell that the semiconductor chip shortage now plaguing the industry has become mainstream news. The problem, of course, is that it's led to supply chain problems that are impacting industries ranging from cars to game consoles to consumer appliances and beyond. That, in turn, is impacting a lot of people and a lot of jobs. As a result, we've even seen President Biden hold up a silicon wafer during a recent White House press briefing and talk about the support that the US government plans to offer to what is now finally understood as a vital industry.

The real-world numbers caused by the semiconductor shortage are pretty harsh. The automobile industry, for example, is expected to lose as much as $110 billion in revenue this year and lead times for parts like DRAM have extended to as much as 12 months. This is creating significant constraints and new headaches for chip designers, device engineers, and others involved in the design and manufacturing of all these devices.

Of course, long-time tech industry participants have seen this before. The semiconductor industry is, unfortunately, somewhat notorious for whipsawing between undersupply and oversupply on a regular basis. Even now, there are some in the semiconductor industry who have voiced concern about a faster than expected return to oversupply and the inevitable rapid price drops for chips that typically come with it.

This time, however, things feel different, for several different reasons. First, we've reached the long-anticipated "digitization" of virtually everything, so larger numbers of chips are being used in a wider variety of devices than they ever were before. Between increased demands for intelligence and connectivity, the demand for chips that enable these capabilities are skyrocketing. To put it succinctly, the Internet of Things (IoT) is finally really here.

Second, the pandemic has driven a number of unanticipated changes. The work-from-home and hybrid work trends triggered by COVID-19, for example, have led to record levels of PC and PC-related peripheral shipments, traditionally large users of semiconductor supply. There's also been enormous growth in home entertainment-related devices, including large-screen TVs, smart speakers and many other devices that use large numbers of chips.

At a higher level, the pandemic has dramatically (and unexpectedly) accelerated the acceptance of and demand for a huge range of technology-focused products and services. In fact, some have suggested we've seen as much as 7 years of technology adoption rates compressed down to a single year. Toss in the fact that most everyone initially expected the pandemic to have the exact opposite effect, leading to huge amounts of chip orders being dramatically reduced 18 months ago, and you have all the ingredients necessary to create the perfect storm in which we find ourselves.

The biggest problem, of course, is that there's no easy solution to the shortage. Sure, there are lots of efforts and announcements to build more fabs—as many as 29 over the next few years—but industry participants know that the incredible costs and complexities involved in manufacturing chips mean that it will be until at least 2023 before any meaningful impact can be felt.

In the meantime, organizations of all types and sizes are working to figure out ways both to overcome these challenges in the short term, while at the same time thinking about longer-term solutions. Unfortunately, in some current cases, such as with certain car models, we've seen auto companies decide to simply leave out functions powered by chips that they couldn't obtain. While that's obviously not a viable option for long periods of time, it does at least permit certain products to ship. In other cases, chip design companies like Silicon Labs are diving into deeper discussions with their entire supply chain, while also communicating more with their customers to ensure that they can meet demand.

We're also starting to see product engineers, supply chain professionals, distributors and chip suppliers starting to think more creatively about what they can do with the chips that currently are available. As with many aspects of the pandemic, the shortage is driving large changes in thinking and approach that many in the semiconductor and product design industry may not have been willing to consider before. Most notably, there's starting to be a lot more flexibility in thinking about what tradeoffs can be made while still achieving design goals. Necessity, as they say, is the mother of invention.

Practically speaking, this is translating into things like looking for alternative supply sources, or adjusting requirements to leverage different process nodes, packaging and configuration choices than were originally specified for a given device. In some cases, it's also leading to redesigns or at least design tweaks to a product in order to leverage the chips that are available.

It's also driving significantly more discussions and better communication across the entire semiconductor supply chain, which can lead to more realistic forecasts. In addition, there's more flexibility on timing. As a result, more organizations are showing the ability to pivot quickly in order to do things like take advantage of changes in another company's production plans that suddenly lead to unexpected availability of some components.

Even with more "out-of-the-box" thinking, better communications and increased flexibility, the complexity of managing chip-based supply chains isn't going to get any easier any time soon. At least now, however, with these types of conversations being raised to C-Level discussions within companies and government leader levels within geographies, the resources necessary to tackle some of these semiconductor industry challenges should be easier to access.

The simple truth is that today's semiconductor shortage issues will be with us for a while, but with new ideas, new approaches and increased flexibility, organizations can smartly leverage resources that are available to them to help reach their goals.

You can follow Bob on Twitter @bobodtech.


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