Front End | Electronic Components Supply Network
Geopolitical tensions impact the electronic components supply network
Electronic components manufacturing relies on complex collaboration between many international organisations, all with different technologies and a particular part to play within the supply network. It is also reliant on the operational efficiency of a multitude of service organisations, from banking to logistics, to support them. This complex interaction enables manufacturers to bring electronic components and systems for industry or consumers to market quickly, and at an affordable price but according to Adam Fletcher, chairman of the Electronic Components Supply Network (ecsn), heightened geopolitical tension around the world is hampering the process and tensions are already being felt in the electronic components supply network
Ongoing China US trade war T
he Biden administration is being less than publicly vocal on the subject but the US’s dispute with China looks increasingly likely to exacerbate supply issues. The US continues to apply strong sanctions on many China-based organisations, resulting in technology licencing or denial of access to key advanced technologies where US (and EU) owned organisations hold definitive Intellectual Property (IP) in both software and hardware domains. Tariffs are being imposed by both governments on a wide range of goods in stark contrast to the near free trade that existed only a few years ago. This situation could however be resolved fairly quickly if China transitioned to international IP law and agreed technology licences between organisations on commercial terms. This would be in the best interest of all parties in the longer term, particularly for Chinese organisations who are today developing significant IP which could also be licensed around the world.
China remains the largest single market for electronic components. The country is a source of both component manufacture and consumption but is however heavily reliant on the supply of advanced semiconductors principally from US organisations. China has been aggressively seeking to acquire advanced technology whilst at the same time developing its domestic capability. It has had some success in its ambitions, but further progress seems unlikely without access to international IP and collaboration with international technology leaders. China is however dominant in the extraction and production of many raw materials (Cobalt, Tantalum, Lithium) and the manufacture of printed circuit boards, passive and electro- mechanical components on which many international organisations depend. China is very well placed to significantly influence the
10 October 2021
supply of these raw materials and electronic components and could potentially disrupt the supply chain by artificially restricting supply.
China and Taiwan The rhetoric between China and Taiwan continues to ramp up: The Chinese government claims that Taiwan is a province of China and has vowed to retake it by force if necessary, whilst the Taiwanese government maintains sovereignty and believes that it has the right to defend itself against attack. The recent escalation of Chinese military activity in Taiwanese airspace and in the South China Sea has been described as “provocative” and “destabilising”, forcing the US, Japan and Australia to confirm their support for Taiwan as an independent nation state. Analysis of the global semiconductor supply chain acknowledges that Taiwan, and principally TSMC’s manufacturing operations and established supply chain are today responsible for over 92 per cent of leading- edge semiconductor production. Unprecedented disruption within the electronic components supply network would result if TSMC, for any reason, was unable to supply advanced semiconductors to its wide range of global OEMs, fabless and fab-lite semiconductor customers.
Robust supply networks
Recent events have demonstrated that even a small failure in a supply chain can have a devastating impact on individuals, organisations and a country’s economy. Supply chain resilience (defined as the ability to speedily recover from an unexpected event) is essential for the maintenance of economic security and prosperity. Governments and organisations around the world have finally realised that the concentration of manufacturing capacity in a single geographic region is a threat to their
Components in Electronics
economic prosperity and as a result are currently attempting to diversify their supply base to reduce their dependence on the Far East. Semiconductor organisations are hurriedly investing in new capacity in Japan, US and Europe in an attempt to geographically diversify their operations, but this is a very complex, very expensive task and the timescale to successful completion is likely to be in the order of several years. It will also result in increased costs of manufacture which, will have to be passed on to customers. If this action results in over- investment in semiconductor industry capacity (as seems likely), semiconductor manufacturers will in a highly competitive market be forced to sell their products at a loss, which is an entirely unsustainable business model.
Concluding thoughts There are many positive signs that the actions of electronic components manufacturers over the past year are now beginning to correct the imbalance in supply to meet the “real” rather than the current “artificially inflated” demand. Assuming that there are no more major destabilising events I forecast that the “generic” lead-time for many proprietary semiconductors will normalise at 10-12 weeks in 1H ’22, with commodity semiconductors falling into line in the second half of the year. That doesn’t mean that there won’t still be supply problems: Some classes of semiconductors will remain on a longer lead-time as part of a structural adjustment to demand for new applications i.e., electric vehicles. The need for increased geographic diversity in their supply chain mandates increased government involvement and financial incentives directly to technology manufacturers but also in providing the necessary infrastructure, be that good access to power, water and an appropriately skilled workforce.
That said it’s the availability of passive components, especially the legacy larger case sized MLCC and TFCR extensively used in the US and Europe in industrial and automotive applications that continues to worry me. There needs to be radical investment in the manufacture of these components which so far has been lacklustre at best, however rising prices may yet rectify this. I predict that the aggressive competition between all manufacturers of electronic components will quickly resolve the supply issues in the electronic components supply network. However, a wider geopolitical dispute particularly in Taiwan or China would be highly disruptive for the global electronic components supply network and catastrophic not only for the citizens of the countries involved but for many organisations, their people, their customers and the global economy. Let us hope good sense prevails.
For information
Adam Fletcher is chairman of the Electronic Components Supply Network (ecsn), a business association established in 1970 that today offers support to all organisations with an interest in electronic components throughout their entire lifecycle. He is also chairman of the International Distribution of Electronics Association (IDEA), an association of individual country electronic components associations whose objective is to arrive at and share best industry practice.
“…Promoting Positive Collaboration Throughout the Electronic Components Supply Network to Benefit Members and the Economy…”
www.cieonline.co.uk
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