Close
Close
Close

Close

08.4.2021
 

Rising Demand and Continued Shortages

Shortages, which were originally attributed to the COVID-19 pandemic, have continued to worsen in 2021. Continuous demand growth in various sectors like 5G, automotive and IoT, ongoing raw material shortages and catastrophes are the primary culprits.

 

2021 Q2 in review

The effects from the factory fires, power outages and shutdowns that occurred in Q1 were seen in Q2 as automotive MCUs lead times grew, SSD pricing rose, and DRAM/NOR Flash took a supply hit. Raw material shortages also continued in Q2, which included wafers, silicon substrate, precious metals, plastic and more.

Furthermore, demand for CPUs, GPUs, storage, memory and ASICs increased after a spike in cryptomining activity, causing additional supply strain on these already scarce components. DRAM prices, for instance, have risen more than 60% throughout the year due almost exclusively to cryptomining activity.

Another common issue caused by the constrained supply of components was that it limited the production of other products, causing manufacturers to prioritize builds with a higher return on investment. Samsung, for example, shifted its focus from small-capacity SSDs to larger capacities as a result of IC controller chip shortages.

 

A look into Q3

Looking forward, the chaotic market and disrupted supply chains across various industries are not likely to subside in Q3. This is attributed to the continuing shortages of raw materials and components, rising demand in numerous sectors and new government shutdowns in Asia.

 

Worsening SSD Shortages

Despite the year opening with soft pricing, the supply of SSDs has gone through intensifying constraints since February. Key contributors to this have been deteriorating raw material supply, natural disasters and the aforementioned lack of controller ICs.

The shortage of controller ICs has created a bottleneck in the production of SSDs that will last into Q3. As a result, some vendors have started to increase pricing on all mainstream series and capacities. Pricing for major brands, including Intel, Samsung and Micron, is poised to increase 10-20% in the coming quarter.

Many of these manufacturers’ SSDs are expected to remain heavily constrained through the rest of the year. Samsung, for instance, isn’t predicted to recover from its SSD shortage until at least 2022 due to the scarcity of needed raw materials for production. With customers already having to wait 2-3 months to receive certain SSD products, Samsung has stopped accepting orders for Q3 altogether.

Intel’s SSD supply is also being impacted by a lack of necessary materials and is expected to be reduced by 30-40% in Q3 compared to Q2, while its official pricing also increases by 20%. Micron faces the same supply issues and allocation will be limited in the coming quarter as a result; the most sought-after capacities being the 480G and 960G.

With 5G demand expected to rise by 40% in the second half of the year, it is possible that the supply of SSDs will be further hindered.

 

The Rise of Cryptocurrency

Throughout 2021, there has been a spike in cryptomining activity as miners around the world have scrambled to obtain any technology that will allow them to remain competitive in the cryptocurrency market. As a result of the renewed interest, additional pressure has been added to the supply of global semiconductors, including CPUs, GPUs, storage and memory.

GPUs were the most impacted by the rise in cryptomining. Demand was so strong that cryptominers were out buying products made for gamers, such as Nvidia’s RTX 3000 series. This caused Nvidia to create new products that would curb miner purchases, as well as improve its supply and demand issues over the coming months.

GPU pricing is now starting to drop across all channels due to the changes made by Nvidia on its cards. Furthermore, the supply of GPUs is being helped after cryptomining demand recently took a hit when China banned financial institutions and payment companies from providing services related to cryptocurrency transactions.

Despite this, availability for all RTX 30 series remains tight and pricing continues to be high due to cryptomining activity in other countries, such as Kazakhstan. It is predicted that demand in cryptomining farms will rise in this region due to the country’s pro-crypto stance, as well as from other factors, such as lower energy costs compared to in China.

The world is still in its early stages of developing decentralized finance and new tokens are launching daily, exemplifying the demand and growth of cryptocurrency worldwide. In the future, strong cryptocurrencies will emerge and consolidate as weaker cryptocurrencies die out naturally.

Already, GPU and storage manufacturers are beginning to create products focused on mining applications with durability being a key consideration. As cryptominers continue to identify and adopt more sustainable ways to mine, there will likely be long-term growth in the crypto industry.

 

Regional Disruptions in Asia

Natural disasters, which caused shortages of ICs, CPUs and memory in the first half of 2021, have continued to wreak havoc on various industries along with the resurgence of COVID-19. With 75% of semiconductor manufacturing based in Asia, the recent environmental catastrophes and shutdowns in this region will likely result in a chain reaction.

The recent lockdown in Malaysia, for example, will add additional weeks to already-stretched lead times for entry-level and mid-range logic ICs, power diodes and other power components used in PCs and other applications. As a result, over 50 semiconductor plants will face delays and production issues, causing higher prices and limited supply.

Infineon has faced one of the worst shortages this year and, as a result of Malaysia’s shutdown, lead times for its products have stretched to 26-39 weeks. Now, there will likely be further price increases, in addition to the company’s planned pricing increase of 15-20% as it works to fulfill backlog orders from 2020.

On top of new shutdowns being put in place, environmental catastrophes in Taiwan, China and the Philippines may have a big impact on semiconductor production. Taiwan alone produces 53% of the global semiconductor market with four of the ten global semiconductor foundries having facilities located in the country.

The country is in the midst of a drought that has left chipmakers scrambling to obtain the necessary amount of water needed for the processing of silicon and for other aspects of chip manufacturing. TSMC, Micron and UMC, for instance, ordered truckloads of water to be delivered to certain facilities to maintain production.

With typhoon season in full force, the possibilities for the drought to subside are high; however, the risk for more potential damage to Asia is a concern. Already, China is experiencing severe floods, which are creating shipping delays and have the potential to cause further supply chain disruptions.

Furthermore, there’s a volcano watch in effect in the Philippines, which could cause major devastation to the area. Samsung, which produces 40% of MLCCs in the Philippines, may have its production heavily affected if an eruption occurs.

The natural disasters occurring are likely to impact production for a range of components, the effects of which will be seen throughout the quarter.

 

The takeaway

As demand for semiconductors spikes even further in Q3, widespread shortages are expected to worsen. Because Q3 tends to be the time of heightened flagship phone production, it is likely additional pressure will be put on the supply of electronic components, especially passives.

In addition, raw material shortages, which were a huge issue in the first half of the year, will continue to be an issue throughout the rest of 2021 – the shortage of ABF substrates may well extend into 2023. SSDs, especially, will face supply constraints and rising prices mainly due to a lack of controller ICs. However, SSDs won’t be the only components facing issues.

The lockdown in Malaysia will affect the production of numerous ICs, delaying the delivery of numerous orders. Additionally, the natural disasters occurring in Asia could potentially devastate the production lines of many major manufacturers located in the region and up to 75% of semiconductors.

Furthermore, growing demand from industries like crypto will exacerbate the already constrained supply of GPUs and CPUs.

Overall, the supply and demand issues seen in the first half of 2021 are expected to worsen in Q3.

WORLD CLASS SERVICE.

Let Fusion Worldwide solve your supply chain needs.

EMAIL: info@fusionww.com GIVE US A CALL: +1.617.502.4100