While the human cost of the COVID-19 pandemic is a tragedy, there are some important and positive changes which are emerging in how governments and businesses are operating. Never before has major structural reform been achieved so swiftly, nor have cheques for billions of dollars been signed so unreservedly.
Booming consumer demand for products incorporating increasingly complex electronic systems and challenges with freight have led to significant supply disruption over recent months, which have profoundly affected almost every industry. Since the beginning of 2021 there have been a steady stream of billion-dollar company announcements warning investors of production delays, postponed launches and impacted profits. The shortages are indiscriminate: in April, even the largest company in history, $2tn Apple Inc, was forced to concede a delay in production by several months for some of its products. This follows similar statements from companies operating in every sector. Those companies operating in the embedded/industrial electronics space have been even more heavily impacted. The capacity constrained semiconductor fabrication plants have prioritised orders destined for the higher volume consumer electronics market over industrial customers.
In the wake of such severe economic consequences, governments and corporations have been taking rapid action backed by unprecedented levels of investment in an attempt to address the problem. After President Biden ordered an investigation into the global semiconductor shortages, his administration has proposed a $50bn investment into US domestic semiconductor manufacturing and research. EU countries have pledged investment of up to $145bn into Europe domiciled design and production of semiconductors. Alongside this, Asian fabrication giants such as TSMC are investing billions into capacity expansion. As impressive as the pace and potency of these actions are, in the short-term they will have limited benefit to addressing the shortages. Building new semiconductor fabrication with a vertically integrated supply chain takes years, even decades. The dominance of Taiwan in this area stems back to the 1980s over which time supply chains have been honed to optimise production and facilitate the explosion in low-cost electronics we expect today.
So, in the short term, a reduction in demand is likely to be the catalyst to the easing in input stocks rather than a substantial increase in capacity.
For the gaming market, the component shortages impacting 2021 has been even more devastating. After a year in which there were widespread venue closures, a return of players and a bold desire to invest in new technology has been hampered by the lack of components to build new machines. The gaming industry has been even more heavily affected by these shortages because of the heavy regulations surrounding the bill-of-materials – availability of substitute parts is not only uncertain but also using them has regulatory consequences.
Working through the short-term problems requires all participants in the industry to play to their strengths. The regulators have to be reasonable and responsive to the challenges affecting their licensees, manufacturers need to be flexible and dynamic in their ordering patterns and bills-of-materials, and component suppliers need to be robust in their response to buffering input stocks and close to the component supply chain vendors to identify early signs of problems. Furthermore, component suppliers must also seek to evaluate and offer a series of options which provide contingency plans to customers which cater for a range of different scenarios around input stock shortages.
In a normal market, some of these options may be undesirable: they may be more expensive, a less elegant engineering solution and may require resubmission. However, in these uncertain times, these options may be the only way to allow continued production. Crucially, these options should be presented to game manufacturers early – well before shortages are affecting deliveries – to allow internal evaluation, testing and approval. This whole process may prove ultimately to be unnecessary if the original input stocks become available in time. However, failure to take such precautions leaves manufacturers and component suppliers exposed to material mitigatable risks.
There are widely diverging views on when the semiconductor market shortages will ease: some commentators talk of a Q3/4 normalisation, while some refer to challenges persisting through 2022. With this degree of uncertainty, it is essential for business partnerships to be effective and mutual support to be prioritised over profit maximisation.
To Quixant, partnership means continual and excellent communication and collaboration– now more so than ever. It means working towards shared goals with full understanding of business goals, and a willingness to be creative with commercial and operational solutions. Globally. Creatively. Strategically. Technologically, there are no limits with Quixant.