Electronic Components Shortage: Will Supply Ever Catch Demand?
Electronic components were on allocation and prices were rising through 2018. Capacitor makers were adding capacity, but not enough to ease supply that year.
The U.S. and global economies kept growing through 2018, and smartphones, cars, connected devices and early 5G equipment kept asking for more electronic components than suppliers could make.
U.S. GDP grew at a 4.2% annual rate in the second quarter of 2018, according to the Bureau of Economic Analysis, and the International Monetary Fund projected 3.9% global growth for the year. Demand for electronics grew with them.
A Shortage in Its Second Year
The components shortage was already under way in 2017. That October, EE Times reported that tight supplies of capacitors and resistors were expected to last into mid-2018, with buyers facing allocation and double ordering. By the middle of 2018, it was clear the shortage would run longer than that.
The wider manufacturing boom added to the pressure. In August 2018, The Wall Street Journal reported that parts suppliers were not keeping up with a boom in U.S. manufacturing that had lifted demand in energy, mining and construction, with factory hiring more than doubling compared with the first seven months of 2017.
High Demand, Short Supply
Everything from capacitors to hard disk drives was in short supply, with parts on allocation and prices climbing, EE Times reported in August 2018. Supply Chain Connect reported in July 2018 that prices for multilayer ceramic capacitors (MLCCs) were up 35 to 45% from the year before, depending on type and application. There was a growing consensus that MLCC prices would stay high long after the shortage ended, EE Times reported, citing Fusion Worldwide.
Adding capacity was not simple. Many suppliers to equipment makers had shed workers after the financial crisis, and some struggled to find skilled staff. Others, burned badly before, were wary of adding capacity in case the machinery-sector recovery was drawing to a close, according to the same Wall Street Journal report.
What Drove Demand
Passive components such as MLCCs led the shortage. A single iPhone X used about 1,000 MLCCs, against 300 to 400 in earlier phones, and electric vehicles, automotive electronics, IoT devices and early 5G equipment added demand of their own, Supply Chain Connect reported.
CPU chips were short too, EE Times reported, and memory was tight as well. TrendForce expected DRAM prices to edge up and global DRAM revenue to reach a new high in the third quarter of 2018, with mobile DRAM supply tightening as new smartphones carried 6 GB or more.
Tariffs added uncertainty. The Office of the U.S. Trade Representative set a 25% tariff on another $16 billion of Chinese imports from August 23, 2018, adding to the tariffs collected since July.
Planning Through the Shortage
Relief was not coming soon. Murata, AVX and other makers were adding MLCC capacity, but AVX told Supply Chain Connect it did not expect significant global capacity to come online until late 2019, so waiting out the shortage put production at risk.
OEMs that forecast further ahead, ordered early and raised lead times with their manufacturing partner before placing an order had a better chance to keep building. Kodiak’s sourcing works that way, with early shortage alerts and alternate sourcing when a part runs short.