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The number of unique active part numbers for components in the electronics
industry is in the tens of millions.
Some parts can be actively manufactured for a decade or more.
This presents challenges in inventory like few other industries.
Original equipment manufacturers (OEMS) obtain parts in one of two
ways. With direct purchase from the part manufacturer or via wholesale
electronics distribution companies. The main players in the later category
are companies that few outside the industry have heard of but they are
multi billion dollar Fortune 500 enterprises.
With so many unique parts and and giant volumes being shipped, the
industry for years operates on a Just In Time (JIT) model.
Both the manufacturer and the distributors want to keep stock on
their shelves for as short amount of time possible.
Even during normal times, this JIT model can often be tenuous.
Those who have worked in the industry for a long time come to appreciate
that semiconductor lead-times act as an indicator of what the market thinks
about the economy in the future.
When an OEM orders parts, they are doing so for product they are about
to build or will build at some time in the future, perhaps up to a year from
now.
When lead-times are short and components are available off-the-shelf
'ex-stock', it reflects that OEM's forecast that the demand for their products
in the foreseeable future will be low. Collectively, they are pessimistic
about the global economy. What the Wall Street crowd world refer to as
"bearish".
When the lead times are long, and it is not uncommon to see them stretch
out to 16 weeks, 25 weeks, 52 weeks, it says that OEMS are ramping up
to build lots of product because they forecast the economy is looking
good.
There are several reasons for the current supply chain disruption.
The COVID crises saw some manufacturers such as the automotive
industry reduce their output and reduce their chip orders.
At the same time, the movement of people out of city offices and into
home offices saw a surge in demand for laptops, PC's, screens,
printers, conferencing cameras, home coffee machines, etc. etc.
Then in March there was a fire in a clean room at a Japanese semiconductor
manufacturer called Renasas, some of whose chips were used by some
auto makers.
When the automotive and other industrial manufactures came back on
line, the demand has been such that it has been highly disruptive to
the supply chain. The JIT model had relied on a relatively steady
flow of orders.
Plus as I mentioned there is the legacy of the tens of millions of
unique parts. Each year, many new chip designs enter the market but
earlier part numbers still have to be manufactured as well. So the supply
chains have become even more tenuous over time.
Arguably one of the two most important companies in the world is
TSMC (Taiwan Semiconductor Manufacturing Cooperation). Again it
is one of these names that few outside of the industry would have heard
of but chances are a significant percentage of the integrated circuits
in your smartphone for starters were fabricated there. TSMC is important
because it is the embodiment of the most advanced manufacturing
processes of any type on the planet. It contains the type of technology
that spies kill other spies for in the movies. It is vitally important to
the western world.
Taiwan was lucky and managed to weather the COVID pandemic better
than most and TSMC and the other Taiwanese fabs have kept going.
The manufacture of semiconductors requires enormous amounts of
water. Where Taiwan is currently under threat is from climate change.
The worse drought in 56 years is currently affecting the island and with
dams depleting there is fear of disruption to the global semiconductor
supply chain.
Footnote:
In the industry, we always use the word "semiconductor" without it being hyphenated.
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