But the turnaround is far from uniform. Everstream’s data shows that the lead time for some advanced chips needed for medical devices, telecommunications and cybersecurity systems is approximately 52 weeks, compared to an earlier average of 27 weeks.
Automotive companies that were hit hard by the pandemic because they initially canceled parts orders were then caught off-guard by rising demand and were left out of stock and bargaining power when it came to restarting. Modern cars can have thousands of chips, and future models are likely to have even more computing power, thanks to more advanced in-car software and autonomous driving.
“Anything in the automotive industry — or competing with automotive capacity — is still very limited,” said Jeff Caldwell, director of global supply management at MasterWorks Electronics, a manufacturer of printed circuit boards, cables and other electronic products. Dave Opsahl, CEO of Actify, whose company sells business management software to auto companies, says chip supply has not improved for automakers, and shortages of raw materials such as resin and steel, as well as labor shortages, have also worsened.
Frank Cavallaro is CEO of A2 Global, a company that finds, procures and tests electronic components for manufacturers. He says the current situation reflects the complexity of the chip market and supply chain. Many end products contain numerous semiconductor components sourced from around the world and require devices to be packaged by companies primarily located in China. “It’s macro, it’s micro, it depends on individual regions,” he says.
Everstream’s Gerdman says the appearance of the new BA5 Covid variant in China has raised fears of draconian lockdowns that could hinder the production of chips and other products. She adds that uncertainty about future capacity — as well as geopolitical restrictions on chip exports — make it difficult to plan ahead.
The geopolitical picture can significantly increase the global capacity to produce advanced chips. Legislation making its way through the US Senate would provide $52 billion in subsidies to increase domestic chip production. The US share of global chip production has fallen from 37 percent in the 1980s to 12 percent today. But while chip shortages have been cited by those ramping up subsidies, much of the money would go towards restoring advanced chip production. The country’s most advanced technology, from Intel, is lagging behind TSMC, showing a potential weakness in US access to technology that promises to be vital for everything from AI to biotechnology to 5G.
The current downturn can only contribute to instability further down the semiconductor supply chain. “Unfortunately, a slowing economy poses the risk that some suppliers will face financial or liquidity problems if they do not have access to capital,” said Bindiya Vakil, CEO of Resilinc, a company that sells AI-based supply chain management tools. “This can pose a lot of risk in the supply situation. Companies really need to watch the financial health of suppliers and work closely with suppliers to give them favorable payment terms, prepayments, etc., to help them with liquidity.”
In fact, the cyclical nature of the semiconductor industry has a few, including Syed Alam, who leads the global semiconductor practice at consultancy Accenture, and is seeing the shortfall turn into a glut. “A growing concern for 2023 is the possibility of chip manufacturing overcapacity,” he says. “Companies must be focused on building a flexible and resilient supply chain for the longer term, and be prepared to respond.”