In 2020, government shutdowns caused by COVID-19 hindered global supply chains. Production was either halted or limited, and manufacturers were left struggling to continue their operations.
2021, on the other hand, is shaping up to be one of great growth, especially with automotive, 5G and IoT, and new component releases hitting the market. But, despite most manufacturers finally being up and running, challenges lie ahead.
One such challenge is worsening shortages, the impact of which is already being seen.
Growing markets in 2021 and beyond
There are numerous market segments that will experience growth throughout the year, including therollout of 5G, the rebound of the automotive sector, an increased need for datacenters and increasing reliance on AI and IoT by companies.
“The automotive industry, specifically, will have a big turnaround this year. Though automotive demand took a big hit in early 2020 due to the COVID-19 pandemic, it is now recovering and is forecasted to have strong growth in the second half of this year. We are already seeing shortages affect production in the automobile industry as demand continues to grow,” states Luke LeSaffre, Director of Sales, Americas at Fusion Worldwide.
The main driver of this growth is electric vehicles. Other key drivers of growth will be increasing consumer demand for vehicle comfort, the rising consumption of plastics in automotive production and increasing vehicle customization.
The automotive interior materials market alone is expected to experience over 5% CAGR from now until 2026, while the aftermarket segment is predicted to see more than 6.5% CAGR in the same time span.
The rollout of 5G is also anticipated to have a huge impact on the semiconductor industry as companies prioritize capacity allocation to 5G production. With the 5G network set as the catalyst to multiple technological revolutions, new devices containing higher performing components will be essential requirements.
Initially, the 5G rollout may only lead to an increase in demand for chips with a higher baseline memory requirement, but in the coming years the massive number of new applications will go beyond just smartphones. The industrial application segment alone ispredictedto experience 221% CAGR between 2021 and 2023, resulting in $497 million in semiconductor revenue. Other markets expected to continue growing in 2021 include thedata miningindustry and gaming industry. Ongoing demand in these industries will likely lead to increased demand for graphics cards, though this growth may be impeded by yield issues for Nvidia chips. The numerous recent product launches in the gaming industry has already put a strain on GDDR5 and GDDR6 supply, which is likely to worsen as both industries continue to grow.
A hindered semiconductor industry in 2021
Though there is rising demand from growing industries, various raw material shortages are leading to tight supply, extended lead times and increased pricing for many manufacturers and on a variety of components. This doesn’t appear to have an end date in sight and is only thought to get worse throughout 2021. The ABF substrate shortage is anexampleof how one shortage can have a widespread impact on components. As a result of demand growth outpacing capacity expansion by 20% in 2020, rising prices have left customers scrambling to fulfill their production needs, especially for CPUs, GPUs, high-end ICs and peripheral products.
“These shortfalls are likely to widen as demand for 5G infrastructure, networking and high-end GPU and CPU applications outgrows capacity further. GPUs, for example, are expected to experience a 15-20% price increase in 2021 due to this worsening shortage,” shares Dylan Chew, Global Director of Purchasing at Fusion Worldwide. Another supply constraint expected to further disrupt the semiconductor market this year is the 8-inch wafer shortage, which originated in 2019. With production capacity currently operating at 99% from increased end-product demand, further pressure will be added in 2021 from the growing 5G industry, automotive industry and IC market.
Because of the8-inch wafer shortage, lead times have been worsening and pricing is on the rise. Richtek, for instance, has reportedly had lead times stretch from 4-6 weeks to 26+ weeks on a wide range of ICs, which are commonly used in computers and consumer end-products.
Other manufacturers, such as LG, AUO and Innolux have are feeling the effects of raw material shortages, particularly for glass substrates. With demand for LCD panels remaining strong, the glass substrate shortage has caused pricing increases of up to 70% above original price levels.
Many manufacturers are competing for a variety of raw materials, including CPU and GPU makers in addition to logic IC and power management IC manufacturers. Because distributor inventories are under allocation, end-customer supply is very tight for a variety of components, which is likely to continue throughout 2021.
There are many opportunities for growth in global supply chains this year created by the rollout of 5G and IoT, the return of the automotive industry and growing demand in data mining and gaming industries. Though rising demand should result in booming industries, numerous shortages could stunt growth and leave manufacturers fighting over resources.