Supply chain: Too lean, too mean, too late
3/18/2011 9:05 AM EDT
Stretched too thin?
The result, on just one count, is now likely to be that automobile companies, white goods manufacturers, consumer electronics companies will see lost production due to a lack of microcontroller ICs. At the same time, notwithstanding IHS iSuppli's comments, such chips as they can source are likely to be much more expensive.
It must be born in mind that global chip manufacturing has been running at greater than 90 percent capacity utilization throughout 2010 and into 2011, which effectively means sold out. With some wafer fabs likely to be out for up to six months as surrounding infrastructure is rebuilt it seems unlikely that building from inventory will suffice. No other manufacturers can take up the slack and if the provision of raw wafers becomes an issue then manufacturing capacity will be further hobbled.
This is likely to manifest itself in the second and third quarters of 2011 while any shortages of chipmaking equipment could effect the chip industry's ability to increase manufacturing capacity in 2012.
Malcolm Penn, founder and principal analyst with consultancy Future Horizons Ltd., has long spoken out against the fablite chip company business model and the attenuated supply chain. He has long said that average selling prices for ICs cannot go on falling forever. He also, like a prophet without honor in his own country, repeatedly said that losing control of strategic capabilities such as chip production and manufacturing more generally, are expediencies that in the long-term would prove detrimental to companies, nations and regions.
It now looks like the Japan earthquake and tsunami could make Penn's points for him although I am sure he would wish that his analysis had not been underlined in this way.
The move from state-supported national and regional champion chip
companies to a globalized electronics industry has provided us with a
decade of cheap electronics. Globalization is now going to ask for the
rest of the bill to be paid.