A wafer

Analysis: Mixed signals trouble component suppliers

The electronics business is facing low demand coupled with spasmodic bursts of orders. E&T discovers that uncertainty is causing problems in the supply chain.

The semiconductor industry is entering what is likely to be a lengthy period of component shortages, with some parts already being rationed while lead times on others move further and further out.

Quizzed at this month's Embedded World show, executives at leading companies such as NXP Semiconductors, Freescale Semiconductor, Microchip Technology and Renesas Technology said that even where they did not have lines 'on allocation' ' the industry's term for rationing ' serious bottlenecks started to become apparent earlier this quarter.

A particular concern is that the electronics business's previous and frequent experience with cycles of glut and dearth is proving to be little help as demand picks up.

'Orders have come back very quickly on some parts, but you still cannot be sure that these will hold up consistently,' said Juergen Weyer, Freescale vice president and automotive sales director for Europe. 'This is particularly true in automotive and MCUs [microcontrollers].'

The automotive market has seen demand distorted by time-limited scrappage schemes and other government incentives. By their nature, these have a highly focused impact, favouring particular types of car in particular countries. Weyer and other leading suppliers have noted that while a stimulus package might raise car sales during its lifetime, business drops off very sharply when it comes to an end.

'The schemes end and so do the orders, very suddenly,' said Weyer. 'Automotive was already a very difficult market but the volatility out there is such that nobody knows how to plan.'

Juergen Axmacher, European marketing manager for the automotive business unit of Renesas, agrees and made a worrying point. 'The stimulus schemes keep the patient alive but when they are taken away, you're not really seeing the move to recovery. What you have is all this data that is virtually impossible to use in forecasts.'

Meanwhile, MCUs are also proving an interesting bellwether because they are sold mostly through component distributors rather than directly by the chip manufacturers.

'There are big issues with visibility,' said Geoff Lees, vice president and general manager for the MCU product line at NXP. 'A lot of it comes down to how the different parts of the supply chain responded to the recession ' how did the distributors run down inventory and how did the customers cut output and run down their own stock?'

Lees said manufacturers can alleviate the problem. 'If you have control of your output at the wafer level, then it's easier to get a broad sense of which parts you should be making and then adapt the wafers fairly quickly to carry those parts,' he said.

But as the semiconductor companies move to address volatility on the customer side, there are signs that suppliers are under pressure also.

'One thing we've been seeing is on the chip packaging side,' says Steve Drehobl, vice president of the Security, MCU and Technology Development Division at Microchip. 'The IDMs [major chip companies with their own fabs] and foundries have done a good job of managing this, but then the chips go out to be packaged and those companies can't keep up.'

Packaging remains one of the sector's more labour-intensive activities and those companies shed staff deeply during the worst of the recession. It is a delicate job and new recruits need six weeks of training before you can put them on a production line. The bottleneck potential is obvious. In addition, there is then talk of shortages for some of the more exotic raw materials used in chipmaking.

The general consensus is that the industry will need six months at least to regain some visibility to allow it to fully address the shortages.

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