Overprovision on computer chips now, buyers told

posted by Charlie Hart
10 February 2021

Global constraints on semiconductors used in the automotive and IT sectors show “no signs of improving any time soon”, firms have been warned. 

Ian Nethercot, supply chain director at Probrand, told SM unprecedented demand for PCs, smartphones and tablets due to home working and remote learning was continuing to impact supplies. 

His comments come as Japanese chip designer Renesas, a major supplier, said supplies are likely to remain tight in the first half of 2021 as the demand for chips surges.

Nethercot added: “There is an increased demand for 5G, AI and IoT. All of this technology requires high processing power, thus increasing the demand for central processing units. This exceptional level of demand has not only exceeded industry forecasts but has also surpassed the level of component supply available in the supply chain.” 

The situation is not likely to improve until at least the second half of 2021, he said. 

‘‘Businesses need to be engaging with key stakeholders to thoroughly analyse their demand for technology this year and forecast immediately for Q2 onwards. They can then share those forecasts with suppliers who have the potential to ringfence stock,” he said. 

“It is important to be working with suppliers who are flexible and can offer warehousing and storage facilities. Stock is king right now, and I would strongly advise organisations to overprovision whatever they think their requirements are.’’

In an earnings call Renesas, one of the largest suppliers of automotive semiconductors, told investors that supplies are likely to remain tight in the first half of 2021 due to a strong rebound in demand following the outbreak of coronavirus. 

Hidetoshi Shibata, CEO of Renesas, said: "Demand is expected to be strong in the first half of 2021. April to June will be stronger than January to March."

Many carmakers were forced to halt production last year due to the pandemic but production has since ramped up, leading to a surge in demand for chips.

Renesas is largely focused on chip design, outsourcing most of its manufacturing to external suppliers, however the firm is trying to increase its in-house capacity but is unable to produce at scale.

"Our production capacity is very small. We don't have the capacity to bring back the production we are outsourcing," Shibata said.

Meanwhile Cisco also told its investors that semiconductor supply chain concerns were impacting the firm’s revenue and gross margin guidance.

Scott Herren, CFO at Cisco, said: “We are contacting all of our key suppliers on that front. We’re leveraging the volume purchases that we have, extending that supply chain further out, all with a goal of ensuring we can protect customer shipments. 

“So there’s a little bit of a headwind coming in those lines from just the current supply chain.”

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