The global economy is now experiencing a fast recovery with growth likely to approach 6% in 2021. The outlook for Q3 2021 and beyond remain positive, and post-Covid19 recession and strong rebound effect in comparison to previous global recessions is strongly observable.
In the moment, the second wave of price increase of electronics components is taking place. The entire global semiconductor supply chain is struggling as it has never struggled in the past. Demand for semiconductors increased significantly, leading to a shortage across all major segments. In addition, raw wafer, raw material, lead frames and logistics rise in prices.
Based on the just released FUTURE Electronics Market report for Q3 and the Future’s Corporate VP statement, we quote:
“Most component manufacturers are now experiencing some sort of lead time extension. Whether it is pure demand on certain technology types, a lack of raw materials or logistical challenges, lead time extensions are anticipated to accelerate and continue.
This unprecedented demand is continuing to fuel the need for raw materials and incremental capacity expansion which is not only driving price increases on previously increased products, but is forcing many manufacturers to increase prices across the majority of their offering in an effort to keep up with their manufacturing, material and logistics cost increases.
As previously stated, the length of the current constrained environment remains unknown. We are of the belief that the environment that we are experiencing today will continue well into Q4 at the earliest. We encourage all of our customers to provide visibility to their long term demand so as to minimize any supply disruptions”
In general, the situation with the material markets is not improving and a negative trend in terms of lead time extension, price increases and material shortages on the open market has still been seen. Record-long raw-material lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments of the manufacturing economy.
PRICE UNCERTAINTY & SCARCITY
As for today, the most problematic manufacturers remain STMelectronics, Microchip, Xilinx, Texas Instruments, Abracon, Nexperia, Diodes, Micron, Fujitsu Jae, TE, ON Semiconductor, Infineon, but also many other remain problematic. Vast number of components persist to be completely unavailable on the open market, or if they are obtainable – the pricing is far beyond reasonable levels.
Raw material prices are continuing to rise with an upward trend in almost all global commodities supporting the EMS industry including copper, resin, aluminium and steel. In parallel to the shortages and extended lead times, price uncertainty remain. Apart from the official price increase signals (in relation to STMicroelectronics, Infineon, Microchip, ON Semiconductor), price increase annotation has also been released in regards NXP, Lapp, Wurth, Bulgin, Maxim, Tyco, Molex, Essentra and a variety of other manufacturers. Based on our observations, price increases are and will most probably continue to take place on nearly all manufacturers.
Behaviour being unreasonable, but unfortunately commonly occurring in reality is that the manufacturers/distributors keep on increasing prices for purchase orders already placed, and thus the price increases are in many situations inevitable for open orders or backlog orders, even if the PO is placed in advance. OEMs should keep in mind that such situations may take place.
It is not seen clearly yet, however a third wave of price increases will most probably take place at the end of this year.
WHEN DOES IT END?
Variety of shakeholders or researches, such as Forrester, Gartner or Dieter Weiss, founder of in4ma claim that the crisis will last through 2022 and continue through 2023.
Based on information as per today – such scenario is strongly realistic. Although the environment of the current market condition is very dynamic, the post-pandemic rebound is strong and based on the IHS Markit PMI Index the order intake remain high, whereas the output in the industrial / computing segment show very strong growth. If the situation remains, this will drive demand for electronics components and thus further backlogs, lead time extensions, dried out inventory and ongoing price pressure. Based on the situation on the stock markets, which in generally a leading economic indicator, it is visible that the situation may be stabilizing, but the after effects may probably take long to ease.
The situation is not improving and there is no clear visibility of changes on the material markets. The current situation will most probably continue to occur until the first half of 2022 and even further until the beginning of 2023.
Forecast / Purchase Order Visibility
Due to extended lead times, the recommendation to OEMs is to extend the forecast/open order visibility covering the whole 2022 and beyond. This is necessary to secure long-lead time materials. Lack of such visibility on EMS’s side, can cause that certain components will simply not be available and gaps in ability to purchase a certain long-lead-time (LLT) components may be inevitable. And with the certain components being unavailable at the open market at all – it will potentially not be possible to conduct a purchase of such component at any price.