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27th June 2022

The State of the Global Chip Shortage in 2022

Over two years into the global chip shortage, it’s still a challenge to get your hands on parts like GPUs and microprocessors.

With this in mind, it’s worth taking a retrospective glance at past events and assessing industry trends in order to take a view on where we might be in another two years’ time.

Recently, AVNET released some timely research into the state of the chip shortage in 2022 with their latest white paper, Deconstructing the Chip Shortage. Amongst the key observations, engineers are still finding the sourcing of parts to be a “very significant challenge”, others report that availability is driving the part selection process.

Let’s break down the findings and assess the best course of action for when you’re inevitably in the situation of trying to source parts for your project.

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Key Findings of the AVNET Report

Many of the findings in the report confirm much of what we’ve all experienced in the electronics industry for the past 24 months. The chip shortage is affecting every industry to some degree, in every country all across the world.

What these findings do show, however, are the types of impacts the global chip shortage is having, and how people from CEMs (contract electronic manufacturers) to EV (electric vehicle) manufacturers are tackling the issue.

Based on the % of respondents to AVNET’s research, 99% of people in the industry are experiencing longer lead times. Meanwhile, 94% are seeing higher prices. Elsewhere, 93% of respondents reported delayed production schedules.

Part Acquisition Difficulties

What’s immediately notable from the report is that 98% of engineers are finding the sourcing of parts to be a “significant challenge” whilst 78% are finding sourcing parts to be a “very significant challenge”.

This is corroborated by a statement put out by Raspberry Pi’s Eben Upton, who made the point in a recent Production & Supply Chain Update that the increased demand around the beginning of 2021 and supply constraints to meet that demand have resulted in significant backlogs for almost all of their products.

“the current situation is as much a demand shock as a supply shock: demand for Raspberry Pi products increased sharply from the start of 2021 onwards, and supply constraints have prevented us from flexing up to meet this demand, with the result that we now have significant order backlogs for almost all products.”
Eben Upton, CEO Raspberry Pi

Upton went on the state that there would be enough supply to meet the needs of business customers, but it does demonstrate the challenges we’re all facing in the industry at the moment.

The causes of the chip shortage have been written about extensively since the shortage began, with fires in major production sites, the pandemic causing layoffs therefore strangling supply capabilities, and much more.

The key gripe noted in the report, however, is the scarcity of MCUs (microcontrollers). MCUs are used in virtually every type of embedded system. In AVNET’s report, an EV Engineer addressed this very point, stating: “When we talk with suppliers and ask, ‘what’s your availability horizon?’ They’ll tell us it’s 50 weeks out. But you can’t just delay a product introduction for 50 weeks.”

The shortage is also having a profound impact on R&D. Again, if the latest parts aren’t available, companies are simply having to resort to existing, older technology which is stagnating innovation. The European Union noted that in 2020, R&D investment decreased for the first time in ten years.

Unfortunately, things aren’t getting much better, especially with the war in Ukraine causing an additional slowdown.

Roughly 50% of the world’s semiconductor-grade neon is produced by two Ukrainian firms, both of which have halted production following the Russian invasion. Meanwhile, Russia exports over 40% of the world’s palladium – another crucial material used in microchips.

One silver lining to note is STMicroelectronics’ new 12” wafer fab opening in Italy. This is expected to start shipping in Q3 2022.

Part Selection and Production

Challenges in acquisition of parts inevitably leads to some difficult conversations and decision-making for electronics engineers.Adapting to Global Chip Shortage Lack of Part Availability

When organisations can’t get hold of a sufficient number of MCUs, or can’t get them quickly enough, it can result in expensive board redesigns.

According to the research conducted by AVNET, 64% of engineers are finding that availability is driving the part selection process when it comes to product development. As a result of this, 81% of engineers agreed that the end product was modified from the initial scope.

At the moment, design for availability is an integral means of design to keep costs down and ensure you’re able to get a product out to market. Over the course of the pandemic, we’ve helped companies stay in business by sourcing alternative parts that, whilst not identical, allow their products to function with few compromises.

Engineers are therefore having to be creative with part selection in electronics design. Design for availability is just one aspect of this.

Supply Chain & Counterfeits

An unfortunate side-effect of the global chip shortage is counterfeit products. So desperate are businesses to find the parts they need, they’re tempted into looking outside the non-authorised distribution channels where the quality of products, and of course the authenticity, is dubious.

Obviously, this isn’t at all recommended. Counterfeit products directly cause design and quality issues, are prone to high failure rates, and are not likely to pass compliance, causing far more problems down the road.

Whilst it’s wise for businesses to widen their supplier bases during part shortages, it’s strongly recommended that unverified channels are avoided. It will cost more in the long run.

Here’s how engineers are dealing with counterfeit parts:

Risk Management Global Chip Shortage

Another issue to watch out for is parts that possess far older date code versions. Even if they’re genuine parts, older date codes can cause mayhem if problems arise that aren’t properly documented by errata.

Future Trends

Opinions on the future length and severity of the global chip shortage tend to vary.

In general, views are fairly pessimistic. 85% of engineers expect longer lead times over the next 18 months, and 81% think prices will continue to increase according to the AVNET research.

In response, companies are attempting to increase their buffer stock, but obviously with lead times on some parts as long as 52 weeks, this requires much longer-term planning than usual, and active supply chain management.

However, there are signs of life. JP Morgan’s research suggests that the situation will improve throughout 2022, and hopefully stabilise in 2023. As of June 2022, however, Techwire Asia is reporting that the lack of chips to power the fabricators that make chips is meaning that Q4 2023 is looking like the earliest date we’ll see improvements.

Meanwhile, a more optimistic Ivan Lam of Counterpoint Research predicts based on PC shipments in Q4 2021 that the shortage may end towards the end of the year. This awaits to be seen.

For more information on improving your supply chain resilience, check out our own long-form guide, How to Manage Global Supply Chain Disruption. Inside, we’ve compiled a range of tips to improve resilience and manage the risks associated with the ongoing chip shortage.

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Article Authorship

This article was researched and written by John McCrea, our intrepid marketing executive, who has worked across the IT industry including the cyber security, ERP, and database industries.