Semiconductor Shortage Enters ‘Danger Zone’ as Lead Times Rise
The semiconductor shortage affecting much of the world’s chip production is still worsening, in at least some markets. The average lead time for chip deliveries increased to 17 weeks in April, up from 16 weeks in March. Just before the beginning of the pandemic began, average lead time was running around 12 weeks.
“All major product categories up considerably,” Susquehanna analyst Chris Rolland wrote in a recent investment note. “These were some of the largest increases since we started tracking the data.” Bloomberg notes that Susquehanna referred to this as a “danger zone” for chips as the risk of buyers engaging in behavior that magnifies the impact of the crisis increases.
Auto manufacturers have signaled they expect to lose out on $110 billion in potential sales this year, due to a shortage of parts. The problem with these types of shortfalls, as we recently discussed in our own guide to Silicon Manufacturing in the Time of COVID-19 (working title), is that they encourage behavior like hoarding. A company that can’t ship a $50,000 final product due to a shortage of $5 parts has every reason on Earth to hoard and stockpile said parts, whether they actually need them or not.
The problem for foundries like TSMC is that it’s very difficult to tell real demand from hoarded product. The risk of a market overheat is rising, Rolland writes, due to the “bad behavior” shortages encourage. He warns that the semiconductor industry might be shipping more hardware than the actual level of customer demand can support.
Hoarding now could make the long-term economic hangover worse by depressing demand during what would otherwise have been a rebound. Other factors mentioned include the impact of an ongoing drought on Taiwan, where the annual monsoon rainy season has yet to begin, and the spike in COVID-19 cases on the island, but these are recent developments. Component lead times have risen for four straight months.
Some components are considerably more bottlenecked than others. Power management chips are seeing a 23.7-week lead time, up four weeks from March, while some headphone makers are facing 52-week lead times. 300mm tool manufacturers were reporting lead times of 10+ months, with wire bonder times up to 6+ months. The lead time for automotive chips has grown to 22 weeks for chips from NXP and 28 weeks from ST. Industrial MCU lead times are up three weeks.
The graph above, from LevaData, shows delays in programmable logic, microcontrollers, network interface cards, and serial I/O controllers. These are some of the cheap, relatively low-level components that have been hardest to find over the past six months. Lead times have risen 2-3x or more in some cases, depending on the component.
These shortages are why various companies are emphasizing the lack of small parts rather than major components, but nobody is certain at the moment how much demand is real and how much is hoarding. Intel, TSMC, and Samsung have all committed to large foundry expansions, which could open the industry to a nasty correction cycle if demand doesn’t remain high enough to justify building all this additional silicon.
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