But the turnaround is far from uniform. Everstream’s data shows that delivery times for some advanced chips needed for medical devices, telecommunications and cybersecurity systems are around 52 weeks, compared with a previous average of 27 weeks.
Auto companies, hard hit by the pandemic because they initially canceled orders for components, were then blindsided by a surge in demand and had no spare inventory and little bargaining leverage when it came to ramping up again. Modern cars can have thousands of chips, and future models are likely to pack even more computing power, thanks to more advanced in-car software and autonomous driving functionality.
“Anything automotive — or competing with automotive capacity — is still severely constrained,” says Jeff Caldwell, director of global supply management at MasterWorks Electronics, a maker of printed circuit boards, cables and other electronics products. Actify CEO Dave Opsahl, whose company sells operations management software to auto companies, says the supply of chips hasn’t improved for automakers and, in fact, shortages of raw materials like resin and steel, as well as labor, have also worsened.
Frank Cavallaro, CEO of A2 Global, a company that finds, procures and tests electronic components for manufacturers, says the current situation reflects the complexity of the chip market and supply chain. Many end products include numerous semiconductor components sourced from around the world and require devices to be packaged by companies located primarily in China. “It’s macro, it’s micro, it’s down to individual regions,” he says.
Gerdman of Everstream says the look of new BA5 Covid variant in China have raised fears of draconian shutdowns that could hamper production of chips and other products. She adds that uncertainty about future capacity – as well as geopolitical restrictions on chip exports – makes it difficult to plan ahead.
The geopolitical picture may well significantly increase the global capacity to produce advanced chips. Legislation on the way through the US Senate would provide $52 billion in subsidies to boost domestic chip production. The United States’ 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 raising the subsidies, much of the money would go toward reviving the production of advanced chips. The country’s most advanced technology, from Intel, lags behind TSMC, presenting a potential weakness in American access to technology that promises to be critical to everything from AI to biotech to 5G.
The current center can only contribute to instability further down the semiconductor supply chain. “Unfortunately, a slowing economy brings with it the risk that some suppliers will find themselves in financial distress or liquidity crunch if they cannot access capital,” said Bindiya Vakil, CEO of Resilinc, a company that sells AI-based supply chain management tools. “This can lead to a major risk in the supply situation. Companies should really monitor the financial health of suppliers and work closely with suppliers to give them favorable payment terms, advance payments and so on to help them with liquidity.”
The cyclical nature of the semiconductor industry even has some, including Syed Alam, who leads the global semiconductor practice at consulting firm Accenture, envisioning the shortage turning into a glut. “A growing concern for 2023 is the possibility of overcapacity in chip production,” he says. “Companies must focus on building an agile and resilient supply chain for the long term and be prepared to respond.”