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Only about a year ago, electronics companies hopefully predicted that restrictions on semiconductor supplies would ease in the second half of 2022. With component delivery times extending to 60 weeks to a year, that’s in the rearview mirror. In fact, Intel CEO Pat Gelsinger told analysts this week about the chip shortage will last until 2024.

For buyers Q2 will look a lot like Q1, but more expensive. Delivery framework The analysis of the IQ of goods points to some grim trends. Components will remain scarce and prices will continue to rise. Eighty-five percent of the intelligence firm’s price dimension is expected to increase in the second quarter, while 83 percent of the runtime dimension is expected to lengthen.

Industry observers expect prices to rise from 5% to 15%.

The usual reasons – lack of materials, inflation and disruptions in logistics – are hovering around. More recently, China’s Zero Covid policy has restricted the production and transportation of materials, components and finished goods, which are crucial to the global electronics supply chain. Freightos Cargo Market reports that exports from China are very limited. Russia’s invasion of Ukraine requires some logistical detours, and several metals and materials used in semiconductor production are sourced from the region.

Some product categories may loosen as 2022 progresses, but indicators point to several more quarters of limited supply. “Prolonged Covid-19 eruptions in two-thirds of China’s provinces and elsewhere in Asia have led to government-mandated suspensions and strict containment protocols – creating additional labor restrictions, straining supplies and introducing new supply chain disruptions,” he said. Richard Barnett, Chief Marketing Officer. and SaaS sales leader at Supplyframe. (Commodity IQ combines analysis and analysis for its intelligence in the electronics market.)

“I think we are just beginning to see the impact of the blockade in Shanghai,” Barnett added.

Raw materials and resin additives have joined a long list of materials in short supply. Lack of labor has limited production capacity and demand is shifting between different materials. Chemical manufacturers have failed to keep pace. Because materials are limited at the front of component production, suppliers can do little to increase production.

Russia’s invasion of Ukraine has diverted air and shipping routes, increasing fuel costs and limited cargo capacity. Supplies of minerals and metals from this region have been suspended.

Supplyframe sees stability in some component areas, while others move to distribution in Q2. “We see some signs of stability in liabilities,” Barnett said. However, it is predicted that analog, complex semiconductors (ASIC, MCU, MPU, PLD), flash memory, non-ceramic capacitors, resistors and standard logic devices will become more expensive with very limited exceptions. Most of the same devices will also stay in or exceed the already increased execution times.

Electronics distributors, who manage a significant portion of the industry’s inventory, do not expect unexpected profits in the second quarter. Executives tell analysts that they have generally been able to meet customer demand, but do not expect deliveries to open.

“I would not say [inventory] is shrinking and I wouldn’t say it’s completely flat “, Sean Kerins, Arrow the next chief executive, analysts said. “I would definitely say it doesn’t. So we’re starting to get more deliveries – and I think that’s going to be irregular at first – because suppliers can increase their volumes. But that is far. But I think it’s still pretty much the same. I think there are more price increases. And we hope to start releasing some of the product by the second half of this year.

“We would like to have a little more equipment – that would be good,” he said Avnet CEO Phil Gallagher at a conversation about Avnet’s profits. “But we serve customers quite well, even though the calls are fast [come in] almost every day still. ”

Barnett of Supplyframe noted that the long lead times of components mean that OEMs forecast 50 to 60 weeks. Historically, long-term forecasts are inaccurate. In the short term, design cycles – which have remained active – show that demand for products will remain strong for at least the next 18 months.

Big change in buying

OEMs and their EMS suppliers are dealing with the vendor market and are facing a new supply environment. Because parts are so scarce, many orders are considered “no cancellation, no return (NCNR)”. Buyers are accustomed to making and canceling orders without cancellation. Annual price reductions are a thing of the past.

Matt Ransom of Avnet

NCNR is not popular with customers, but resistance has declined as the shortage continues, said Matt Ransom, director of Avnet Silica’s supply and operations chain at EMEA. “I wouldn’t say they accept it, but the early ‘shock and awe’ became ‘ready to negotiate’. Three years ago, the answer would have been “no way”.

Distributors are taking advantage of the price increases of suppliers that are expected to remain. Suppliers pay higher prices for materials, labor and logistics that are delivered to customers.

Double ordering, which has contributed to oversupply in the past, does not seem to be prevalent, said Barnett of Supplyframe. “With a shortage lasting from 9 months to a year, much of it has been cleared,” he said.

The car industry, which has been hit hardest by chip shortages, has also changed its buying habits. Some carmakers have partnered with chipmakers and are turning more to the supply chain management channel.

A study by Avnet Silica analyzes public financial records for major semiconductor and automotive manufacturers. He revealed that 45 percent of the world’s major carmakers have announced shutdowns due to a shortage of supply chain in the last year. Car manufacturers lost more than $ 300 billion in sales during that time and more than $ 500 billion since the beginning of the pandemic.

Additionally:

· 70 percent of the world’s major carmakers have announced shutdowns in the past year

· Semiconductor inventory levels fell 43 percent in two years to reach their lowest point in more than a decade

· While chipmakers have reduced availability to just 23 days, delivery times have risen to more than 150 days, with some chipmakers falling to 3 days in stock.

“I think there is more acceptance, there are trade-offs with longer-term relationships and [car makers] “They have entered an environment that they do not usually dominate,” Ransom said. Carmakers compete with consumer electronics companies for limited chip supplies.

Historically, carmakers have been putting pressure on suppliers for low prices and flexible cancellation policies. Their design and product life cycle are long, while chipmakers often update their products. Although winning in design means longevity for the chip supplier, the initial volumes of orders are huge.

Now that electronics are so prevalent, carmakers are recruiting buyers with industry experience.

“We see a lot more information coming from carmakers,” Ransom added. “In the short term, it’s about how they can maintain their lines. In the long run, this is the option to engage with distributors. ”


Q2 Supply Forecast: Just Like Q1, But Pricier

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