An Integrated Circuit (IC) chip is the fundamental building block of all electronic devices. An IC chip is a set of electronic circuits, such as transistors, resistors or capacitors, on a small flat piece of semiconductor material, usually silicon. ICs can have a multitude of functions, including acting as diodes, transistors and microprocessors in devices.
Why is there a global chip shortage?
There have been several chip shortages over the years, but none as severe as the shortage that occurred as a result of the Covid-19 pandemic. The pandemic caused a huge pause in the supply chain, as businesses were forced to close or work from home and there was a big reduction in demand from consumers. The industry was’n’t prepared for this sudden decline. But even more so, the industry wasn’t prepared for the unpredictable snap back in growth as various countries came out the other side of lockdowns and the pandemic, and the demand from consumers peaked. This rapid economic and consumer recovery has led to unprecedented demand for chips.
The vast majority of chip manufacturing is done by two major companies: TSMC, based in Taiwan, and Samsung, based in South Korea. Alongside the pandemic, Taiwan has suffered from the worst drought in over 50 years, meaning it’s been difficult for them to get hold of large quantities of water, which is a vital part of the manufacturing process.
The conflict between Russia and Ukraine further intensified the on-going issue, as Ukraine supplies 25 – 35% of the world’s purified neon gas, and Russia supplies 25 – 30% of palladium, a rare metal used for semiconductors.
Global increase in demand
Rather than a slow, steady recovery from a sudden halt in demand during the pandemic, the demand rebounded extremely quickly to almost pre-covid levels, leaving suppliers and manufacturers struggling to keep up.
The semiconductor industry is expected to grow by approximately 7% by the end of 2022, and this increase in demand is leaving OEMs waiting for semiconductor chips for longer than they ever have before. Lead times are currently starting at 28 weeks, and averaging over 40 weeks for basic components.
There are a few industries in particular where demand is increasing globally and fuelling the current spike and shortages. These include the automotive industry, the IoT (internet of things) and 5G. While these are spiking, other industries, such as consumer electronics (laptops, tablets and phones) have slowed since the pandemic and people have returned to work and the office, which has left these companies with too much stock and not enough demand. Furthermore, companies such as telecommunication providers saw a huge increase in demand during the pandemic to service those working from home, and with companies still adapting to hybrid working models, while not fully remote, the demand is still there.
Equipment shortages
Not only has demand increased at unprecedented speed after the pandemic, the average lead time for equipment for manufacturers has increased from approximately four months, to between ten and twelve months, causing further delays. The irony lies in the lack of chips which are needed in order to manufacture chip making machines.
Material shortages
To add further insult to injury, the industry is also suffering with raw material shortages. Natural disasters, such as the drought in Taiwan, storms in Texas and fire at major plants in Japan damaging major factories and production lines and equipment have led to a shortage in vital raw materials.
The US – China trade war also resulted in a shortage in raw materials such as silicon, holders and reactor tubes, all needed as part of the semiconductor manufacturing process.
How long is the IC shortage expected to last?
There has been much speculation in the industry on how long the shortage is expected to last. Some sources expect the effects of the shortage to last for some years, however, other sources are more optimistic on the IC outlook and believe that the latter part of 2022, and into 2023 should show signs of supply chain recovery. 2023 is anticipated to bring relief to some industries, with the exception of the automotive industry which is expected to still suffer from a shortage of components.
As a whole, it’s expected the shortage will continue throughout 2023 and into 2024 for all industries.
How can the IC shortage affect PCB design?
While for the majority of Europe the Covid-19 pandemic has eased, alongside government restrictions and lockdowns, there are areas of the world, such as China, that are still suffering from spikes in infections and various local lockdowns. Some of the areas that have been locked down contain key suppliers for components. This means manufacturers are still struggling to get hold of vital components for PCB assembly which can not only cause delays, but affect their ability to produce components at volume.
This means that manufacturers must work hard to look ahead and strategise effectively and find additional suppliers that might be able to help. Manufacturers may also face delays in transport of components, again affecting the overall process. OEMs should be prepared and plan for these delays and factor this into their production time and quotes to clients.
What design options are best practice during the IC shortage?
The best design option when dealing with a chip shortage is design for availability. This is a market availability lead approach which means adapting your designs to different components based on their availability. These may not be your original ‘go-to’ components, or may be more expensive, but they won’t necessarily have the same lead times. Demand and availability when designing your PCBs will allow you to work with ‘normal’ lead times of 8 -1 2 weeks, keeping your production on schedule and allowing you to manufacture at volume. Manufacturers should no longer look to finish prototypes before sourcing their components, as this leads to a high risk of delays, or simply not being able to source the components you need and create your product.
Will changes in design affect the performance of PCBs?
Generally speaking, changes in your design, such as design for availability, should not affect the performance of your PCB. So long as youre following normal procedure and the usual assembly process steps correctly, the performance of your PCB and product should not be affected by the change in design or components used.
What else should you consider when designing a PCB during the IC shortage?
There are a few additional things you should consider when designing your PCB, such as an electronic design partner, working with the industry, keeping an eye on rising costs and considering the features of your product carefully.
Working with an electronic design partner can be helpful when you’re experiencing a shortage or redesign you have not yet dealt with. Electronic design companies will likely have dealt with a number of issues and shortages, and will be able to give expert advice on how to tackle this. Additionally, changing components due to a shortage or redesign can lead to more complicated designs which you may need assistance and extra expertise with. So, it’s worth considering if partnering with another company could bring extra value to your end product.
Make sure you do your research when it comes to the design phase, so that you’re getting your components from reliable suppliers with good customer service where you can ensure you’re getting what you need, and when you need it. It’s also worth being aware and monitoring the rising costs of both design and components to avoid any nasty surprises during the manufacturing process. As demand increases, so does the cost and the time needed to source parts. It’s also worth considering your feature set when in the design phase, for example, are you confident that every feature on your final product that you’re designing and sourcing chips for is vital for the consumer? For example, do you have a headphone source that consumers are no longer using, or do you have six USB ports when you could make do with three?
Lastly, it’s important to stay connected and in the know with your industry. Making relationships and sharing knowledge between other suppliers and distributors can strengthen your strategies. You can also get better insights from real life experience with others in the industry, than you can by just reading articles online.
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