Chips and Chip-Making

May 5, 2022

The drought in chip availability that has hit auto production, raised electronics prices and stoked supply-chain worries in capitals around the globe has a new pain point: a lack of chips needed for the machines that make chips.

The wait time it takes to get machinery for chip-making—one of the world’s most complex and delicate kinds of manufacturing—has extended over recent months. Early in the pandemic it took months from placing an order to receiving the equipment. That time frame has stretched to 2 or 3 years in some cases. Deliveries of previously placed orders are also coming in late.

As a result, hopes of quickly overcoming the global chip shortage are dimming as it stretches into its third year, writes The Wall Street Journal (May 4, 2022). What began as a pandemic-era aberration of supercharged demand for laptops and other chip-hungry gadgets has spiraled into a structural problem for the industry. Now many chip executives say the problem will persist into 2023 and 2024, or even longer.

Tools aren’t the only headache. There is the challenge of hiring people to work in new factories, supply-chain hiccups in essential chemicals and a shortage of  “substrates” that connect chips to circuit boards.

Meanwhile, demand is showing little sign of ebbing. Chip-industry sales topped $500 billion for the first time last year and should roughly double by the end of the decade.

Lead times for chip deliveries remain at historic highs. In April they averaged more than 6 months, almost double where they stood at the height of the last boom period. More than 90 chip factories are expected to start production globally between 2020 and 2024—a huge number in an industry where a single manufacturing tool can cost tens of millions of dollars. Even with the supply issues, global equipment sales this year are expected to be more than $100 billion.

Although the demand peaks during the pandemic have eased and higher inflation is weighing on consumer spending, long-term market shifts such as the switch to electric vehicles, growing industrial automation and the ubiquity of smart devices are keeping factories booked up and prolonging the chip shortage.

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.comProfessors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.

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