Microchip Technology incoming CEO, analysts believe semiconductor shortage could extend into 2022

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Global semiconductor market to grow in 2021 due to electric vehicle production.

Ganesh Moorthy, the incoming CEO of Microchip Technology, recently told the Phoenix Business Journal he believes the global semiconductor shortage could last until 2022.  The executive also called the current crisis “the worst I’ve seen it in my 40 years in the industry.”

The shortfall has prompted auto plant closures and disruptions in the renewable energy, cryptocurrency, and consumer electronics fields.

MarketWatch reports several industry analyst groups agree with Moorthy’s assessment and believe the supply crunch will not be resolved this year.

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However, Microchip and other leading component makers are working to ease the worldwide bottleneck later this year.

Why the Semiconductor Shortage Could Persist Into 2022

Moorthy explained the shortage might persist into 2022 because semiconductor manufacturers have been unable to accommodate the abrupt cycle changes brought about by COVID-19.

Last year, automobile sales plummeted by double-digits across the globe after the pandemic began. In response, many auto manufacturers canceled their orders with vendors like Microchip. Companies shifted their production lines to fabricate parts for other industries, like the consumer electronics field.

That meant many carmakers did not have adequate chip supplies to meet sharply rebounding automotive demand late last year.

Moorthy declared component providers need more time to reset their production lines and catch up with surging automotive orders.

Market Analysts Agee with Microchip

J.P. Morgan analyst, Harlan Sur, concurs with Moorthy’s assessment and expects chip quantities will not catch up to consumer interest for three to four quarters. He further anticipates carmakers and distributors will need another one to two quarters to bring their inventories to traditional levels.

Christopher Rolland, a Susquehanna Financial analyst, predicts the shortage will worsen in the spring and extend already protracted lead times. He is also concerned that manufacturers will overcorrect because of the crisis and create an industrywide inventory glut.

Matthew Sheerin, a Stifel analyst, believes the lack of production capacity will push the component shortfall beyond the near term. He worries that rising raw materials costs and new supply chain disruptions could exacerbate the bottleneck.

As it happens, Samsung Electronics, NXP Semiconductors, and Infineon Technologies recently shuttered their foundries in Austin, Texas, due to a harsh winter storm. TrendForce estimates the abrupt closures will impact silicon wafer and NAND/SSD controller availability.

In addition, reports have also emerged that Broadcom has pushed its lead times to 50 weeks due to the shortage. Similarly, 50 percent of Osram’s automotive components are purportedly on allocation, while its lead times are 20 to 24 weeks.

Those developments indicate car, electronics, and other manufacturers will be dealing with parts scarcity for longer than initially projected.

Potential Near-Term Easing of the Chip Crunch

Despite the crisis’s scope, various chipmakers and foundries have moved to alleviate the supply crunch in the near-term.

Microchip has adjusted its procedures to serve its automotive clients better. The corporation elongated its cancellation terms from 45 to 90 days to reduce just-in-time orders. And it initiated a price increase on certain items, which has not diminished end-market interest in its offerings.

The company also created a program that will give priority to firms that place non-cancelable orders for 2H21. Thus far, the company has received interest in its new initiative from about 20 clients.

Renesas Electronics Corp. has also taken steps to address the global semiconductor shortage. Earlier this month, the company restarted a production line at its Naka, Japan factory to make more 40nm MCUs. Though the plant briefly closed after a nearby earthquake, it has reopened and resumed full production.

Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker, initiated a “super hot run” to increase its output of electronic vehicle components. The firm stated the change would cut its normal 40 to 50 day production times in half. Since the foundry makes parts for Infineon, NXP, Renesas, and other top suppliers, its efforts should provide some relief from the crisis.

However, the shortage’s complexities indicate chip lead times, pricing, and availability will not start to normalize until this summer at the earliest.

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