While the US CHIPS Act provides $52 billion for domestic chip manufacturing and research, it will be years before ambitious plans for expensive fabs built by Intel, Micron and others reach the chip production stage.
The Act goes a long way to start bringing back manufacturing to the US, now down to 12% of global production, according to advocates.
However, the chip shortage first seen a few months into the pandemic in 2020 isn’t going away, according to Jennifer Strawn, head of sourcing for the Americas and EMEA for Rand Technology, a global component sourcing company for more than 30 years.
In a recent interview with Fierce Electronics, she said average lead times to place an order for a chip and receive it have increased to 52 weeks, compared to eight to 12 weeks prior to the pandemic in 2020.
She warned chip customers that “anything short of 52 weeks lead time is expected to last for several years.”
After the awareness of a chip shortage sunk in early in 2021, major companies such as Texas Instruments, Nvidia and Micron decided to change their planning approach to have a sufficient supply. “In order to get their head around it and gauge demand, they had to decide what was real demand,” Strawn said.
Some companies entered NCNR orders, meaning non-cancelable and non-reschedulable, with suppliers but in the early part of 2022 they weren’t sure when chip delivery would come which led to buying on the open market. For OEMs that process of open market buying on top of NCNRs often led to too much inventory, which is one reason companies supplying chips are now reporting low demand into coming quarters.
“It’s a butterfly effect,” Strawn said.
In a sense, the pandemic had a positive impact because it has forced companies to rethink their supply chain strategies. Ultimately, that could prove to be a good thing.
“Yes, Covid has been a catalyst for how we needed to have the right mindset with risk mitigation and supply assurance,” Strawn said. “The thinking was to lean into suppliers, and you’ll have the strongest chance of navigating through uncharted waters and what is the right supply. The road is still not clear, but the path is being carved.”
Chip companies are also facing trade embargoes and global inflation affecting demand and a continuing war in Ukraine. The most vivid example of a potential shortage is with neon produced in Ukraine used by various fabs in the chipmaking process. Many chip producers already had plenty of neon before the war broke out in February, but as the war continues, shortages of neon “could be very problematic in 2023,” Strawn warned.
“Every day, geopolitics become more heated and are going to pose ongoing disruptions as electronics companies think about strategies and products and components,” Strawn said. “It shows more than ever the importance of steps being taken to bring fabs to the U.S. so geopolitical issues don’t become so devastating.”