September 15, 2021

Semiconductor Lead Time Updates: Long-Awaited Relief Possibly on the Horizon

After reviewing the latest semiconductor lead time insights and analytics, LevaData has derived some unique perspectives from customers’ operational and market data.

While supply constraints, such as seasonality or new COVID-19 labor shortages, are undoubtedly still present, the impact of these factors varies. They’re worse at various nodes in the supply chain and affecting specific components within a group more than others.

However, after experiencing a dramatic 2-3x increase in average semiconductor lead times over the last eight to 12 months, it appears that the situation may be shifting again. The delays are shortening or, in some cases, beginning to flatten at the least.

The graph above, which includes up to the first week of September, plots lead times of a basket of commodity components used in almost every electronic device. MCUs, MPUs, and Diodes were some of the initial categories to start the sharp increase in lead times.

Now for the first time, we’ve seen a several-month streak of lead times either flattening or declining – especially in those categories that initially led the lead time increases.  

  • Is this a real plateau or trend inflection?  
  • Could these categories that faced the most significant initial lead time increases indicate that things are beginning to moderate and trend back toward normal?

Most component manufacturer’s facilities are near or at 100% capacity and many companies have been purchasing excess quantities of components to stockpile supply going into the busy holiday season. Are the markets over-stockpiling, and are these changes in lead time momentum signaling the beginning of supply constraints' path returning to normalcy? Or, is it that manufacturers have simply adjusted their forecasts down closer to constrained supply?  

The graph above, which includes up to the first week of September, aggregates that basket of commodities as a single line to show the change in overall lead time momentum.

Many companies’ cash flow was greatly affected by having to tie up more cash than usual to establish sufficient component supplies for enabling continuity of product supply to their customers. However, this change in momentum might be pointing toward brighter days for companies, where “extreme” excess inventory is no longer needed. The change in lead time momentum indicates that the semiconductor market is beginning to shift back toward more balance between supply and demand. However, unforeseen volatility factors, like COVID-19 shutdowns, will continue to impact that trend over the next three to six months.

Maintaining a Competitive Advantage

As we’ve previously mentioned, there are two key requirements you need to satisfy to stay ahead of the game and protect your supply chain. The first is accessing and utilizing reliable, up-to-date analytics on lead time averages and insights. The second is investing in a reputable, always-on risk navigation platform. LevaData’s Supply Risk Navigator software does just that, offering companies the visibility and recommendations needed to safeguard their supply chains and maintain agility. Connect with us today to learn more about our revolutionary, AI-driven platform and what we can do to help you manage these risks and more.

August 31, 2021

Not Just Another Automotive Industry Transformation

The U.S. automotive industry is a key economic indicator of health and market sustainability; its conjoined relationship with supplier industries creates a profound economic and political influence. Yet, despite these roots and associative dependency, the instability of the automotive sector is absolute. Margins trend below 5% in the best of times, and profitability by volume is low, despite huge revenues and large employment numbers

As history might suggest, cyclical transformation is imminent. To better understand what is to come, we first need to look back. Once we’ve done that, the insights provided below will be far more successful. 

A Look to the Past

Material shifts in the macro-economic conditions of the automotive industry and the markets by which they’re serviced are nothing new. Take, for example, the 2008 housing crisis. Credit markets froze, forcing a destructive bottleneck in U.S. auto sales. By 2009, the automotive sector was drowning in an $80B crisis—all while continuing to suffer from overcapacity and market saturation. This financial disaster, along with years of poor fiscal discipline, a general lack of innovation, and the worst corporate performance in American history, created risk across the automotive industries. It was only with a 3.5% government contribution to the total U.S. gross domestic production (GDP) that the market could survive.  

The stimulus saved jobs, created new operating standards, encouraged new financial practices, helped to define employment terms, and facilitated energy efficiency standards across the boards. The apparent lasting effect of this exchange for cash was innovation, including electric vehicles (EVs), lower fuel consumption, and smaller vehicles. 

One such company that would benefit from this industry impasse was Tesla, which was close to shuttering the operation amid the 2009 auto crisis. Conveniently enough, the incoming U.S. president was keen on both a green energy economy and executing the auto bailout. These two circumstances collided, and in 2010, Tesla took a $465M federal loan to design and mass-produce electric vehicles (EVs).

Moving Forward

Fast forward a decade, this global proliferation of EVs has transformed the auto sector while creating growth in new supplier subcommunities—such as semiconductors. Conventional vehicles require an average value of $350 of semiconductor materials, whereas hybrid and fully electric vehicles will contain significantly more—between $1000 and $3500. While a modest percentage of total cost, these auto semiconductors come in a wide variety of specialized use cases (e.g., autonomous driver tech, sophisticated entertainment centers, and simple technologies for windows and seat movement).

A New Set of Roadblocks

Demand for chips dramatically increased in the automotive industry between 2010 and 2019. However, when Covid-19 ravaged the globe in 2020, auto manufacturers expected slow sales and scaled back in their demand. As a result, chip manufacturers naturally scaled back production of “mature” chips and pivoted to producing more technologically advanced “emerging” chips to support the rise of 5G and its associated electronic devices. As the automotive sector recovered from the COVID-19 pandemic, they saw a returned increase in demand. Unfortunately, manufacturers’ switch to more progressive chips meant that the automotive industry would now face significant shortages when they needed materials most.   

With mobility constraints caused by the pandemic, the global chip shortage persists. This is all in the face of accelerated demand for EVs, conventional auto, and all forms of personal computing and electronic devices. It’s important to emphasize that the impact on auto manufacturers is disproportionately high. Considering that lead times for chips have continuously increased over the last few quarters, producers must prioritize consumption by sector and revenue. Auto is low margin and low volume for semiconductor sales—less than 10% of a $542B market. 

Where We Are We Now

Disruption of the auto industry in 2021 is real and palpable—with no sign of relief or improvement coming anytime soon. While some companies, such as Toyota, appear more resilient to chip shortages and other forms of market volatility, twenty manufacturing plants across North America and Europe have been shuttered and/or sit idle. Overall and globally, four million fewer vehicles will be produced this year than initially projected, and direct manufacturing companies stand to lose $110B in sales.

What to Expect Next

In the months to come, we should expect government bodies to inject stimulus funds, chip production to increase, and new fabrication plants to be constructed. These actions will mitigate the next crisis, but it will not alleviate this one, as it requires up to $20B in capital and five years to construct a new semiconductor foundry. 

For those looking to maintain a competitive advantage while they weather the storm, investing in cognitive supply platforms that harmonize your view of enterprise information is key. Having the insights needed to both anticipate and quickly react to market shifts ensures enterprises have the opportunity to gather the right supply and ensure revenue attainment.

The LevaData Platform offers much-needed visibility into potential obstacles and risks by leveraging relevant external insights across multiple tiers of your supply chain. Learn more about LevaData’s revolutionary, AI-driven platform and what it will do to help your organization mitigate supply chain risks like those happening in the auto industry today.

Post by: Scott Morgan

August 3, 2021

Semiconductor Lead Time Updates: What You Need to Know Moving Into Q3

Several weeks ago, we offered some key insights into how the recent semiconductor shortage was impacting lead times for supply chains across the boards. The good news is that we’re now equipped with additional information to provide updated predictions. The bad news, unfortunately, is that the lead times haven’t gotten any better. In fact, they’ve gotten worse. Here’s everything you need to know to try and maintain a competitive advantage.

Semiconductor Lead Time Updates

The Updates

In the last seven months, since the beginning of Q1 and as we enter into Q3, the average lead times for some of the semiconductors we’ve been tracking have roughly doubled.

As a result, some semiconductor suppliers are now asking customers for 18-month non-cancelable / non-returnable purchase orders to assure supply. These requests, while unprecedented, are connected to the race for assuring long-term semiconductor availability. Various news reports confirm this fact, stating that semiconductor companies are locking in foundry capacity with longer term commitments than ever before to ensure they get their "fair share" of future supply. In one example, Digitimes reported, “UMC has plans to invest vast sums to expand a 12-inch fab site in southern Taiwan, and eight of the foundry's major clients have already reserved parts of the additional capacity for a six-year period.

As we already know, the lead-time increases were driven by a number of exogenous factors, exacerbated or even driven by the COVID-19 pandemic. And with further unplanned shutdowns in various regions likely to continue impacting supply, reversals of these lead-time increases are unlikely anytime soon. And with recent news reports stating that Apple is increasing their production of the iPhone by up to 20% from the prior year, we can expect further strain on the current IC supply through the remainder of 2021.

Maintaining a Competitive Advantage

As we’ve previously mentioned, there are two key requirements you need to satisfy to stay ahead of the game and protect your supply chain. The first is accessing and utilizing reliable, up-to-date analytics on lead time averages and insights. The second is investing in a reputable, always-on risk navigation platform. LevaData’s Supply Risk Navigator software does just that, offering companies the visibility and recommendations needed to safeguard their supply chains and maintain agility. Connect with us today to learn more about our revolutionary, AI-driven platform and what we can do to help you manage these risks and more.

June 10, 2021

Unpacking Wafer Price Increases From Leading Foundries

Recently, the industry’s largest pure-play foundries have been announcing wafer price increases for all their major production nodes. This represents a shift from previous pricing practices, and the resulting impact on fabless semi companies is in turn, driving them to pass those increases on to their customers. Organizations ought to heed these current and future changes to identify the results on their supply chains.

The Plays From the Leaders

TSMC announced several months ago a record $100B investment over the next three years to expand wafer capacity. UMC, Samsung, and Global are making the same play, albeit less extensively. Further digging suggests that much of that TSMC capacity expansion will be geared toward their advanced nodes (7,5,4,3nm); this is also where most of the other foundries are investing. A number of the foundries are also asking key customers to help fund the expansion in return for commitments on future capacity.

Roughly $24 billion from TSMC's 2021 capital budget is set to be spent on expanding capacities for advanced technologies, including 3nm, 4nm/5nm, and 6nm/7nm. Analysts from China Renaissance Securities have predicted that the majority of these funds will be used to expand TSMC's N5 capacity; they estimate anywhere from 110,000 to 120,000 wafer starts per month (WSPM) by the end of 2021. Meanwhile, TSMC has announced that 10% of its CapEx will go to advanced packaging and masking; an additional 10% will be allocated toward specialty technologies.

All of this additional investment, as well as the simple supply/demand imbalance currently in the market, is leading Foundries across the board to raise their prices across almost all of the nodes. Digitimes recently reported another round of increases from UMC, Vanguard, etc. for Q3, with TSMC canceling any discounts.

What These Increases Mean for Your Supply Chain

Anecdotally, we’re seeing many semiconductor-design companies pass 15+% price increases to most organizations. Some of those increases are being added to MPN pricing; others are coming as "expedite" fees. A few customers have been able to leverage business awards with their EMS/ODM partners in order to mitigate the majority of those increases in Q2; however, almost all have very real, substantiated concerns about the impact of these increases on their Q3 costs. 

The most disconcerting factor, by far, is that some semiconductor suppliers seem to be coming back to their customers multiple times for wafer price increases; these actions seem to reflect a certain lack of control on their supply chain pricing/costs.

One way to protect any long-term damage to your organization’s cost optimization efforts is to establish an agreement with suppliers that outlines parameters around limiting any additional increases for the remainder of 2021. While it’s entirely possible the market could turn again and soften, most projections are that this will not occur until mid-2022 at the earliest. Being aware of this is crucial to enable price renegotiation when possible.

LevaData’s Cognitive Supply Platform can provide even more insight into what your organization can do to stay ahead of competitive, unforeseen pricing changes.

April 21, 2021

How the Semiconductor Shortage Increases Lead Time & Generates Supply Chain Risks

Since the beginning of 2021, the discrepancy between the increasing demand for semiconductors and the lack of available supply has become a worldwide news event. In fact, semiconductor shortages have been reported across almost all major IC groups. While the most obvious impact has been within the automotive industry (the lack of critical semiconductors led to shutdowns of auto factories for all the major manufacturers), the shortage has undoubtedly generated supply chain risks across the board.

The Cause Behind the Shortage

Numerous factors played a role in straining the semiconductor ecosystem, all the way from foundry to backend OSAT capacity. Some of the most notable include:

  • Increase in consumer purchases of digital devices during the COVID shutdown to enhance connection and productivity
  • Accelerated build-outs of data centers
  • 5G handset and infrastructure investments
  • Exponential demand for cyber currency mining hardware

These factors all drove increased overall demand for a wide range of semiconductors, from microprocessors and power management ICs to memory controllers and various logic ICs. In addition, factory disruptions and US-China trade tensions exacerbated an already tight supply situation.

What This Means for Your Organization

With this backdrop in mind, LevaData analyzed the changes in lead times for the main semiconductor groupings. From January to April of 2021, semiconductor IC lead times increased 75% on average. For some of the more in-demand components, those increases have been even more dramatic:

  • Programmable logic: 12 to 33 weeks (175% increase)
  • Microcontrollers: 16 to 44 weeks (175% increase)
  • Network interface ICs: 12 to 40 weeks (233% increase)
  • Serial IO controllers: 9.5 to 39 weeks (311% increase)
Semiconductor lead times

In some instances, customers saw their lead times increase to 52+ weeks. In such cases, any new order for components will take a year or more to deliver. Given that most companies struggle to forecast more than six months out, this creates significant supply chain risks, putting a massive strain on revenue visibility and attainment.

Although LevaData believes such actions on behalf of semiconductor companies are a slight overreaction to the current supply/demand frenzy, all indications point toward a tight supply over the next nine to 12 months – at least until Q2’22 – while the industry works to expand capacity [ Update: What You Need to Know Moving Into Q3 ].

However, there are also indications that many customers are building larger component inventories than they have previously maintained. This could lead to some semiconductor supply corrections due to double-ordering and overbooking. In the meantime, robust planning, supply risk assessments, proactive order management, and real-time insights regarding supply trends are essential for any procurement team to stay ahead of a very competitive game.

What Your Organization Can Do to Stay Ahead

Companies that invest in supply chain analytics and visibility platforms are better positioned to react to market shifts and predict future market movements. This enables them to gather the right supply at the right time to ensure revenue attainment.

LevaData’s Supply Risk Navigator platform provides visibility into potential risks and obstacles by using community-based analytics and real-time market data. By offering clear, prescriptive, and predictive insights, your organization will remain nimble, adaptable, and, most importantly, successful. Find out more about how LevaData’s revolutionary, AI-driven platform will help you mitigate supply chain risks and keep your operations moving forward today.

December 22, 2020

4 Steps to Assure Supply & Maintain Competitiveness in a Tightening Semiconductor Market

Based on our client insights as well as LevaData community trends, it is clear that the semiconductor market supply outlook has begun to reflect tightening inventories, with spot supply shortages and extended lead times impacting across industries.  Unplanned upsides and targeted price reductions are getting harder to obtain in this environment, as manufacturers are experiencing robust demand due to economic recovery from the initial dramatic COVID-19 slow down.

Reasons for the increased tightening in supply include the continued strong IT demand for work-from-home purchasing, 5G device and infrastructure expansion (including the latest news that Apple is driving for 30% production increases on iPhones in 2021 due to 5G demand), as well as demand shocks from Huawei advance buys due to US semiconductor purchase restrictions.  In addition, supply impacts from backend material shortages and reduced capacity investments, are contributing to an overall tight semiconductor market. 

It is difficult to predict how long this situation will last, especially given the renewed economic slowdowns that may come with additional COVID-19 outbreaks worldwide, but many industry observers are estimating the situation of tight supply lasting into Q3’21.

Given this situation, LevaData recommends the following actions for customers to assure supply as well as maintain price competitiveness:

  1. Ensure all EMS/ODM partners are driving full demand plus appropriate buffers to suppliers.  In certain cases, buy-aheads of key components to ensure inventory may be warranted.
  2. Price declines in Q4 were as expected, but Q1 is showing flat or even somewhat higher pricing. Lock pricing soon and consider pricing agreements for the first half of 2021.  
  3. Push back on manufacturer attempts to raise prices, using LevaData Target pricing insights.  Wherever pricing is not "best-in-class" there is no real justification for higher prices.  We continue to see some targeted reductions being given in this environment, given the right leverage.  
  4. As always, stay in close contact with key suppliers, advising them of demand outlook and pressing them for priority in supply.  Don't forget the smaller suppliers as well, which may have less influence in the fab or backend supply chain - consider sending out an updated RFx to gather updated lead times to ensure purchasing is aligned to the longer cycles.  

Interestingly, the semiconductor industry has fared rather well during 2020 while many other industries have struggled, reflecting the importance of electronic content in distance communications, digital sales and online engagement, and even COVID-19 related mitigation systems, among other things.  Maintaining a vigilant approach for supply, while utilizing LevaData insights to guide negotiations and targets, will enable those companies that are investing in digital transformation to stay ahead of the curve in managing supply and price risks.

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