The global semiconductor market has long been dependent on Asia, but here are some of the major factors shaping chip manufacturing in Europe.
Is There a Passive Component Shortage?
You may have heard talk of a passive component shortage, and while there is truth to this, it isn’t a cause for panic. As with almost all industries, the availability of products is dictated by the laws of supply and demand.
We’ve outlined more about the cause for the current passive component shortage, as well what OEMs can do to deal with it.
Why is there a shortage and what components have been affected?
The current shortage of passive components has especially affected the availability of multilayer ceramic capacitors (MLCCs), diodes, transistors and resistors. The reason for this shortage is primarily due to investment in new technology, which is increasing the demand for certain components whilst reducing the demand for others.
All suppliers are looking to invest in technologies that they believe hold a major place in the market going forward. Currently, the most popular markets into which suppliers are investing are smartphones, automotives and the Internet of Things (IoT).
Smartphones are hardly an emerging market, but the demand is kept high through companies manufacturing a new model as often as once a year. The amount of publicity and marketing surrounding the new model of a smartphone always has an abundance of people looking to upgrade their smartphone before they have a real need to.
Smartphones require a lot of passive components, including around 1000 capacitors per handset. With 1.46 billion smartphones produced in 2018 alone, this demand puts a huge strain on suppliers.
Electric and hybrid cars
Electric and hybrid cars are a real investment in the future, with some countries prohibiting the production of any new petrol and diesel cars in the coming years, and electric cars require around 22,000 MLCCs alone.
Even before this, new vehicles have been using more and more passive electronic components as new functionalities have been added, such as in-built navigation, advanced speaker systems and parking assistance. Now, features such as remote start and head-up displays are further increasing that demand. Further to this, components for vehicles are more expensive due to stricter manufacturing requirements related to warranties.
The Internet of Things
The IoT market is also growing rapidly, as people dream of a ‘smart home’ which is more than just a voice assistant to make shopping lists and play music. Now, device connectivity can be used in heating systems, lighting and more, and it is predicted there will be 20.4 billion IoT devices in circulation by 2020.
Since all these devices use a large number of electronic components, the desire from OEMs to convert as many devices as possible to be IoT compatible puts a further strain on the market, resulting in a shortage of passive components.
Investment in these areas is resulting in a situation where demand outstrips supply. There is increased production and increased competition for the necessary components, and a price increase and reduced production for components used in older technologies.
Suppliers will only produce as many of these outdated components as they realistically expect to sell and there won’t be a surplus. Therefore, in order to keep up with the market, we may see more OEMs upgrading their technologies to use more of the new components that are also used in emerging markets.
How to deal with the passive component shortage
OEMs need to start looking to the future in the same way that suppliers do. Even if they are not part of the emerging markets, OEMs need to understand which components are being used in new and popular technology and see how their own products can be adapted and updated using similar parts.
Whilst such an approach keeps OEMs on the side of increased supply and demand, they will also be in heavy competition for the components they need. As such, having reliable, qualified backup and alternative suppliers for all parts will allow OEMs to adapt to shortages. They should look to use the suppliers who can provide components without suffering increased lead times.