How the chip shortage has improved supplier relations

The semiconductor shortage has contributed to improved supplier relations at technology company Applied Materials.

The company, the world’s largest semiconductor fabrication equipment supplier based on revenue according to Forbes, said shortages of silicon components led to greater supplier engagement and partnerships.

Gary Dickerson, president and CEO of Applied Materials, said in an investors’ call: “Our key issues are shortages of silicon components, as well as certain other parts, that go into the subsystems of our tools… A positive consequence of our current challenges is that our supplier engagements are becoming much stronger. Not only are we partnering with our suppliers to overcome near-term constraints, we are also building more robust solutions to support industry growth over the coming years.”

He went on: “Probably the biggest thing that we're doing differently now is the multi-tier visibility in our supply chain. So, previous to this situation, we never really had to focus on chips and components that are deep in our supply chain. 

“But I would say that what's encouraging to me is the engagements we have with those suppliers. We're also extending our planning horizons with those suppliers. We have tremendous focus within all of our different business units with tremendous engineering horsepower focused into the supply chain.

“So this multi-tier visibility is dramatically better. The engineering horsepower we have focused and really, the joint problem solving, I'd say, with our suppliers, it's really been great.”

Dickerson said Applied Materials was focusing on addressing parts scarcity, expediting deliveries, and adding labour in factories and in the field, as well as taking actions to improve value capture.

“We are doing whatever it takes to deliver for our customers, from sending Applied resources to supplier sites, qualifying alternative parts, investing in our supply chain, to working with customers in creative ways to accelerate shipments, including merging systems modules at their sites,” he continued.

Applied Materials’ second quarter results showed revenues of $6.25bn, up 12% year-on-year, and profits before tax of $1.864bn. Dickerson said lockdowns in China in April “delayed” around $150m in revenue.

Dickerson said: “The primary focus for our customers is securing supply for 2023. The visibility our customers are providing is both longer term and more detailed than in the past. On this basis, we currently see 2023 remaining strong and being higher than 2022.

“We anticipate our ability to fill this demand will remain constrained by ongoing supply chain challenges in the near term, with incremental improvements beginning in our fourth quarter.”

Brice Hill, SVP and CFO of Applied Materials, added: “So as we think about quarter four, we're focused on improving logistics, improving the supply chain, making cost reductions with some of our key projects in terms of re-engineering and finding more commodity solutions for some of our products.”

Intel said semiconductor shortages had cost the US economy around $240bn in 2021, with the shortages expected to last into 2024.

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