As the world recovers from the global pandemic and vaccination programmes gain pace, the tone of news is, on the whole, optimistic. As the focus moves to economic recovery and a return to something resembling normality, many sectors are breathing a metaphorical sigh of relief.
Elsewhere are worrying signs that the knock-on effects of the pandemic are only now beginning to surface. Factories that shut down and are now ramping back up to capacity are finding they are coming back online only to face supply chain issues as capacity in component supplier factories has shifted to other priorities.
The automotive sector is one of many affected. Modern cars have an abundance of technology – recent reports suggest 150 million lines of code and up to 100 different processors. As the pandemic hit, automotive manufacturing slowed as demand stalled, and only now that other sectors are opening up are demand forecasts suggesting that the time to ramp up production has arrived. But the supply chains that are relied upon for the sensors, circuits and processors have been diverted to service sectors that didn’t stall, and in fact thrived, through the pandemic.
Sectors including wireless, IoT, personal comms and video streaming have burgeoned through the pandemic. Zoom’s revenues had quadrupled by September 2020, and Microsoft reported a 50% increase in daily active users and neither are expecting this increase in demand to drop off. So when automotive demand dropped, fabs switched their attention – and capacity – to service sectors that were thriving. It’s good business.
But those same fabs aren’t going to switch back at the drop of a hat when the car industry calls – contracts are signed, processes in flow and capacity simply isn’t there. Fabs slowed down the expansion of their wafer capacities as demand was lower. It takes time – from 20 weeks up to a year or two to bring a wafer fab online, so simply increasing capacity isn’t an option either. Instead, the fabs are in a position of strength, with their services in high demand, so the long-term picture, for them at least, is strong, but for sectors that experienced a drop in demand and revenues and were anticipating a resurgence, it seems the true impact of the pandemic is only now starting to take effect.
It’s rumoured that TSMC’s 5nm capacity is all taken up by Apple, and Samsung are in a similar thriving position, with reports that their legal teams are all engaged in managing NDAs and contract negotiations and have no capacity to discuss new engagements with prospects.
So while some win, others lose out. In the long run, things will inevitably find some type of equilibrium, but in the short term is there a learning to be taken? Could IP reuse shortcut at least some of the delay?
Perhaps. But supply chain resilience is a huge and escalating issue. There are other socio-economic issues in the mix too with tensions around political topics in the far east, anxieties are certainly high. There has never been a more important time to ensure your supply chain is robust, resilient and reliable.
This is an issue occupying many in Europe and the US. With the issue now top-of-the pile for leading politicians globally – not least in the White House – one positive outcome is likely to be the development of new manufacturing plants closer to home.
Interesting to note that since I posted this blog the subject has gone mainstream – for example, in a recent news piece from the BBC, the Harvard Business Review and the Guardian.
