Back at the end of Q3 2021, LevaData shared insights as part of our ongoing series highlighting the latest trends and changes regarding semiconductor lead times. Today, we're sharing the latest updates to help your organization manage the disruptions and challenges posed by the industry's current state.
Before we can understand where we are currently, though, we need to look back. So, let's look back at what we saw for semiconductor lead times back in early Q4'2021.
Around this time, we reviewed a basket of 20 different semiconductor types commonly used in the market. Upon review, the data suggested some dips in a few trends, which could have been regarded as early signs of lead time increase momentum starting to weaken.
Fast forward a few months to January 2022, and the data was far less promising. While it looked like lead times could have started leveling off or even begin declining in early Q4, the Omicron surge worldwide led to additional factory and regional shutdowns. This affected the semiconductor backend supply in particular, with a reaction from manufacturers to continue to raise lead times. The fact that lead time increases are continuing to climb is likely due to what we’re calling the continuing supply chain trifecta: decreasing inventory, supply that can’t catch up, and increasing demand.
Evaluating the Data
When reviewing these trends through a holistic lens, one might feel hopeful in suggesting that there could be an arc of stability approaching. Unfortunately, the data as of today does not yet show this leveling-off trend in lead times.
The current outlook continues to suggest shortages for semiconductors into Q3'2022. Most semiconductor manufacturers are sold out on key product lines based on current production levels, with commitments from larger customers out past 52 weeks. Given that dynamic, there is less incentive for them to lower lead times at this time. Although we do expect lead times to level off and slowly decline from here, we’d advise against expecting any dramatic inflections. In fact, given the recent events in Ukraine and the potential impact on the global supply of raw materials used in semiconductor production coming from either Russia or Ukraine, such as neon gas, hexaflurocyclobutene, and palladium, we could expect further pressure on lead time trends remaining at the current elevated levels for some time.
The largest increases are those found in Programmable Logic and MCU/MPUs. The lead times for Integrated Circuits aren’t quite as steep but are still continuing to climb. Even highly commoditized passive components like Resistors and Capacitors cannot escape the pull of the market to extend lead times.
But it’s not all entirely bleak. For example, even though Diodes have had problems, lead times have stabilized over the past several months.
Even still, the overall takeaway seems clear: lead time relief that we had hoped to see in Q4 has been delayed, and it will likely take most of 2022 to moderate. We expect to see continued fluctuations in semiconductor lead times over the next months as supply and demand strive for better balance and as unexpected shocks continue to affect the market (such as the just-mentioned situation in eastern Europe). But the hope is that lead times will begin to achieve that "arc of stability" in the latter part of 2022. The key question is, which levels will they stabilize around?
Lead times are now anywhere from two to four times longer than they were a year and a half ago. Integrated Circuit lead time averages have quadrupled, while Non-Integrated Circuit lead times have doubled. The average? An increase of three times as much.
The above graph, while not a true forecast, offers a compelling perspective on the potential timeline ahead. If lead times decrease the same way they increased, our best-case scenario to return to our previous “normal’ suggests we’ll be waiting for at least a couple of years. With new foundry capacity coming online in later 2022 and 2023, we expect lead times to begin to moderate in 2023, heading towards more historical norms in 2024. However, to some extent, the overall market shifts with increased demand from EVs and the continued drive to digitization may mean lead times may not revert fully back to past norms. It is very possible they may level off at higher averages for some time.
Maintaining a Competitive Edge
As previously stated, there are two key requirements you must meet to stay ahead of the game and safeguard your supply chain. The first is getting access to and using reliable, up-to-date lead time averages and insights. The second step is to invest in a reputable, always-on risk navigation platform. LevaData's Supply Risk Navigator solution does just that, providing companies with the visibility and recommendations they need to protect their supply chains while maintaining agility. Contact us today to learn more about our AI-powered platform and what we can do to help you manage these and other risks.
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