A Common Narrative for Manufacturers: Increased Demand Offset by Strained Supply
Manufacturers in various industries can’t seem to catch a break these days as shortages have become a common theme in the supply chain.
Analog Devices Inc. (ADI) is among the long list of manufacturers struggling to rebound from supply chain disruptions due to raw material shortages, COVID-19 outbreaks and extreme weather conditions impacting global manufacturing hubs and wreaking havoc on production lines. The Massachusetts-based semiconductor manufacturer is now reporting lead times of up to 52-72 weeks, while supply remains significantly constrained.
ADI’s severe supply struggles are occurring in tandem with its acquisition of California-based Maxim Integrated. The acquisition closed at approximately $29 billion and is anticipated to elevate ADI’s competitive edge against Texas Instruments (TI) in analog semiconductor part manufacturing. However, analog semiconductor supply strain is likely to persist for ADI through Q4 and beyond based on market trends and the company’s highest demand coming from the automotive sector.
ADI currently caters its semiconductor manufacturing to the automotive, gaming, consumer electronics and industrial parts sectors with its primary stake in analog semiconductors, used in power management for automotive batteries. It’s no secret that the automotive sector, in particular, has been drastically affected by the global semiconductor shortage. The need for electronic components for carmakers is increasing as the relationship between automotive and technology companies tightens amid collaborative efforts. The demand for more technologically advanced vehicles is outpacing electronic component manufacturing, leaving both chipmakers and their customers in a bind.
If major manufacturers like ADI and Texas Instruments are struggling to keep up with surging demand, what does that mean for component prices? Similar to ADI, TI’s lead times are up to the same extremes with average delivery expectations of 24-45 weeks — some even extending to 80 weeks. TI increased its Q3 2021 prices by 5-20% and ADI will likely do the same going into Q4. Both manufacturers are navigating government mandated regulations at factory locations due to COVID-19.
The reduced manpower, increased demand and backlog is the perfect storm leading to shortages across various commodities that could last throughout all of 2022. In response to the supply bottleneck, companies are adding open-market sourcing to their supply chain strategies to brace against shocks that disrupt manufacturing. This will mean more price adjustments, manufacturing process changes and operational strategy revamps needed to adapt to the global disruptions.