Chip shortages: Our official statement
Our official Ignys company statement: The Global Electronic Component Shortages
What you need to know about chip shortages if you have a great product idea.
If you are a start-up, you will be doubly impacted by the chip shortages.
This means you could be put at a significant disadvantage against competitors if you don’t plan ahead.
Luckily, there are some things you can do to mitigate the problems.
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How to tackle the chip shortage as a product developer
Topics covered in this article at a glance. 18 minute read.
“It’s very possible to still make your product a success if you adapt accordingly.”
- Put Design For Availability at the top of your agenda
- Order parts ahead where you can
- Commit to the project (don’t just test the waters)
- Allow for extra design time and part costs in your budget
- Optimise your forecasting potential
- Sense check the longevity of your new product’s appeal
- Get advice from an electronics design specialist and CEMs (Contract Electronics Manufacturers)
- Remember you are not alone, there is a great product community out there
Now we’ll dive into this in some more detail.
So first off.
Which chips are in short supply?
Semiconductors and computer chips are undergoing a global shortage for a variety of reasons. This started in 2020 and is getting worse in 2021. These chips are at the heart of any electronics device and demand is growing as the supply problem continues.
Why is there a chip shortage globally?
Three main things have caused the chip shortage. Bad forecasting, the pandemic and a fire at a major supplier. In other words, demand now far exceeds supply and the problem is global.
How did bad forecasting help cause the chip shortage?
The demand for chips was forecasted incorrectly over the 2019/2020 period. The assumption was that the effect of Covid-19 would lead to a drop in demand for components. Which turned out to be wildly inaccurate.
It was assumed that people would stop buying cars, consumers would hoard their savings due to financial uncertainty and everyone would stop creating new cutting edge electronic products because they would see it as too risky during a global pandemic.
Why has there been such a high demand for chips?
There has been a huge boost in demand in 2020 and 2021 due to rapid growth in the following areas:
Working from home causes demand surge for electrical business goods
In April 2020, 46.6% of people in UK employment did some work from home (WFH). This led to a scramble; as companies desperately looked to equip all their staff with everything they needed to be productive remotely. Including desktops, laptops and mobile phones. This also led to a rush to introduce extra tools for businesses. Such as multi media devices to keep business communications effective.
Entertainment at home
27% of the workforce surveyed at the start of the pandemic were furloughed. This meant people were unable to socialise outside their own household. As a result people invested in gaming, VR sets like Oculus and other tech products. As people sought ways to have fun in the safety of their own homes. That surge in electronic consumer items continues to this day.
Tech start up boom
Many people had time to reflect on a great product idea they had been thinking about for a while. Many of them finally took the leap to start their own business. Others saw the tech opportunities created by the pandemic. They sought to create a successful product which could help many people. For example, hygiene or telehealth products.
Car sales bounce back
Whilst global car sales initially declined, sales of electric cars rose globally by 43% despite the pandemic and experienced a record year in the UK in 2020. The SMMT reported in April 2021 that a rebound in car sales was occurring. Cars use semiconductor chips for a variety of functions including vehicle infotainment and connectivity. So the industry has been hit hard as a result. In addition, the global initiatives to go green have pushed electric and green transport. Which has far more electronics than your standard car, pushing demand for chips up even further.
This imbalance between supply and demand has led to a significant jump in lead times.
How bad are the lead times for chips and when might the chip shortage end?
You could be looking at up to 12-18 months to source some components and many sources predict the situation won’t improve for 2 years. In comparison this used to be 3-6 months.
Why can’t we just make more chips?
It takes years to build semiconductor fabrication facilities and a huge amount of investment is needed. Most of these chip foundries are in China and Taiwan. Due to geopolitical friction western nations are looking to increase their internal supply and reduce dependency from these countries.
In the future this should help the global supply and inject some competition into the pricing. Bringing down costs for product developers. However realistically this will take 2-5 years as these factories take a lot of time to set up.
This is due to the huge investment which is needed, this can run into the billions. Also these factories include very expensive equipment and controlled zones like clean rooms. You also need a large mining operation to support the factories. In February 2021 President Biden issued an executive order calling for a review of national supply chains. It’s never good when you rely on a different company or country and shortages occur.
Have chip shortages happened before and why is this time different?
Yes it happened before
The push of electric vehicles and the latest phone releases pushed technology to be smaller a few years back.
There was no more capacity for fabrication plants to manufacture low volume parts. So the MLCC shortage become quite an issue at the time.
However this just meant that products has to be redesigned with smaller components which were more readily available.
This time bespoke and specific parts with silicon are hard to buy. So while you may need to redesign the product, the redesign is also very difficult as suitable alternatives are in short supply.
As a last resort, review your functionality and the needs of your customers and market. Do you need that extra speed from your Ethernet network? Or could you still provide 90% of your customers and keep you business going while you are waiting for the long lead time items to arrive?
How are the chip shortages affecting start-ups and product designers?
The chip shortage puts new companies at a significant disadvantage. This is because it is very difficult to predict sales of a brand new product. You are also far less likely to have cash reserves to fall back on. Whereas larger companies usually have more capital and can use forecasting to predict sales up to 2 years in the future. They also have existing relationships with manufacturers who know they can commit to volume. Luckily there are several ways you can help level the odds as an SME or start-up which we will share with you now.
How to to tackle the chip shortages for the best chance of product success
Prepare for long lead times
Prepare for long lead times and form a strategy for part sourcing. Weigh up the Pros and Cons of launching quicker or waiting for the ‘perfect’ parts.
If you want chips you are joining the back of a very long queue.
There are a number of ways to tackle this.
Get design help
First of all it’s imperative to work with an electronics design partner who can help you to choose the right components to design into your product. They can help you minimise the risks of not being able to get hold of parts.
Option 1: Reassess your launch date
If you have the funds, or can raise them through crowdfunding or venture capital then you can sit on the product launch for 12-18 months whilst you wait for the parts, the advantages of this include cheaper parts and more flexibility on the parts you can use, however you probably won’t want to wait 2 years to launch your new product! You also might not have the capital available to commit so early without a return on your spend. What’s more your idea may be outdated by the time you finally release your product.
Option 2: Order ahead
Alternatively you can order larger quantities of the components you think you will need so you have a reserve of part reels in place. Often this last option gives you the best flexibility as a new product developer.
Historically start ups could often test MVPs (Minimum Viable Products) and then move towards further prototyping and the final design before they need to place large parts orders. Now the lag time between MVP and production is over 12 months if you order parts as you need them. And this leads to design issues which we will explore in more detail later.
Here are some more ways to tackle the global chip shortages.
Choose parts with multiple sources
Design For Availability (DFA) is about making sure you can get hold of the parts you need in the future.
Any components selected for a product should have alternate sources or similar parts that can replace the one that you have included in your design.
Work with your electronics design partner to choose components that are available from multiples sources and avoid parts with a single supplier.
Be aware that stock levels fluctuate constantly
Stock levels can be 3,000 one day and then disappear the next so your electronics design partner needs to be exceptionally agile to cope with the changes and help you adapt accordingly and plan ahead.
Treat bespoke designs with caution during the chip shortages
Using bespoke highly integrated components in your design is now much more risky. Often a more generic design is the way to go to safeguard component availability.
Choosing to use custom manufacture specific footprints, particularly more unusual ones has always been a little risky but now it is a dangerous game.
There is now an increasingly competitive industry for highly integrated parts meaning, bespoke pin outs and unique functionality that there often isn’t a second source for. This leaves you at the mercy of one manufacturer with their lead times and their costs that go along with their exclusivity. And remember if you are a new customer they will often favour a larger existing customer. Therefore, using a single source for a part is now a huge red flag.
For example, Logic chips are something nearly everyone makes, they are commodity items. Whereas incredibly high efficiency boost converters at 90%-95% plus efficiency might only be available from one place. These can have a 65+ week lead times. This is not advisable at all from design point of view. Are you going to commit to a part which can’t be mass produced for over a year?
If waiting does not concern you, you could minimise your design and part costs by using these bespoke integrated parts, but realistically there could still be problems down the line with supply so it remains a big gamble.
If forecasting is an option. Use it.
If you do already have products on the market use your forecasting power to plan ahead for the sales and volumes you want and get buy-in from suppliers and manufacturers. Larger players will have more buying power and sway when it comes to manufacturers. Therefore, if you can find the funds to plan ahead and book orders in volume, rather than asking for a small run off, this can put you on a more even footing.
Is your product commercially viable in the long term?
Many companies who are developing Covid-19 related products are still at the NPI (New Product Introduction) phase as the UK comes out of lockdown. This means they could be left with limited sales potential. Think hard about whether your product will still be relevant in the long term? Some trends such as hygiene, gel dispensers or alternatives to touchscreen are likely to stay engrained for the foreseeable future due to a societal shift as people have changed their habits and remain on high guard. However, if your product’s appeal relies on everyone working from home then you may be in for a shock. If you aren’t sure on this then a feasibility study is a good place to start to assess if your product is worth developing.
Weigh up the changing costs to components
Most of the components which have been the hardest hit are also the cheapest. For example transistors at 5 pence a go have long lead times but those as 25 pence are far easier to find. In some cases it may make sense to go for the higher cost in order to ensure a quicker route to market compared with waiting and losing your first mover advantage. This could be managed later down the line with a cost reduction project when the parts start to become available.
Think bigger with your enclosures
Realistically the final size of your product may end up being bigger than planned.
The components that are available tend to be bigger. Again, as a comparison 8-10mm components are now far easier to get holder than 2mm ones. The enclosure you planned originally may no longer fit your electronics. Your plan for a small device might not be feasible within the launch timetable you planned. Also, instead of using one component to do multiple things designers are often now using discrete designs using transistors and resistors. This means the design will be bigger, but it is a lot more market tolerant and fault tolerant.
For example, you can purchase 20 different op-amps that would replace the ones you’ve got, you can buy 100 different transistors which work with your design. You know there are alternatives available for those discrete components. So many manufacturers make these discrete parts in the same footprint or make variations of the same part. Whereas an integrated advanced battery charger could be specific to only one manufacturer.
You have to commit during the chip shortages
Testing the waters is no longer an option.
You must be realistic and think about order commitment and forecast wherever possible. You used to be able to dip your toe in the water. Test your product by making a few hundred to see how it goes. If you do this now you will have a huge problem making the transition from this small batch to volume manufacture.
The good news is if you use a good design partner they can help you here. For example, here at Ignys we will do everything in our power to check the build we make for you will be a design that works for you in the future and help you plan ahead to source parts.
Budget for extra design work
Electronic design consultancies usually charge by the hour for their time and now more design time is needed than ever before. Increasing design and test time goes a long way to shorten those lead times.
How has this affected electronics design engineers day to day work?
Chip shortage effect on electronics design engineers
Steven Richardson from Ignys says “As a design engineer in the current climate this has posed huge challenges. Previously when I was doing component selection my primary focus would be on cost and cost reduction techniques. Component availability used to be 2nd or 3rd on my list of requirements. My questions would be, is it within budget and does it meet the specifications? Nowadays I must sort columns by available stock, not price which has caused a major shift in my priorities to help customers. This means increased pricing for each part but it also increases the design time that is needed as the available components often require more testing and time for verification.
Why your design process needs more attention during the chip shortages
Steven, senior electronics engineer at Ignys, explains that the design time needed has increased for a number of reasons:
More time to sort parts
“Part selection is now a major skillset for electronics engineers. It’s much harder to find a component that would do the same job as before especially as parts that perform multiple functions are much harder to come by.”
Less reliance on component libraries
“Over the years we built up a huge library of highly reliable components which we knew had minimal weaknesses. Now this library isn’t as bulletproof because these parts cannot be sourced within a reasonable lead time. We used those components as we had high confidence in them and could reuse them to speed up design. We knew the footprints; we’d built it on a board and tested it. Now that assurance and guarantee is gone because whilst those components are still available it could be 40+ weeks to get hold of them which is not ideal for either prototyping or volume manufacture.” Luckily at Ignys we still have many tricks up our sleeves to help us source the best parts.
More testing is needed
As a result of new and different components needing to be sourced, more product testing and verification is required. This will add to your design costs so you need to be aware of this and be prepared to spend a little more to get a reliable product. The review process takes longer because the specification, footprint and manufacturability needs checking. The good news is all this extra testing means you have extra reassurance there won’t be problems with the design later.
Harder design work
“Engineers are having to do clever things to make these discrete parts work”
Because of the global chip shortages things are moving away from microcontrollers and highly integrated chips, to using more discrete parts. However, those complex chips were far easier for engineers to design in; they often required minimal external components and worked without much help and often the datasheet details how best to use them. Now electronics engineers are needing to go back to the fundamentals and use multiple components to do something one component would do, resulting in more design work, testing and thought which needs to go into each design.
Good hardware developers will be able to calculate how to do things in a more discrete fashion if they want fault tolerance or a quicker turn around. Less integrated designs have an impact on the design time required to achieve the same result. Also, to make sure a discrete alternative meets your desired specifications you’ll need profile the design for example over the products temperature range. You need to make sure it won’t go unstable at low temperatures and it won’t overheat. There will be different behaviours at different impedances, frequencies etc…
Related Service: Electronics Design – Design For Availability with our award winning team
What is Steven’s biggest advice to new product developers during the chip shortages?
Steven, the article author, shares some more top advice for product development during the chip shortages.
Buy Parts Early
“It’s vital to buy a quantity of parts early at your own risk.”
Order ahead where you can and manage the risk by weighing up the cost of ordering parts you won’t need against not having the parts you do when you need them and what a delayed launch could cost.
Some components from the first prototype might not end up on your final board, but a good electronics design consultancy will be able to help you assess which parts are more likely to be needed. It’s up to you how much you’re willing to commit to buying ahead.
The best plan is to agree which components you are likely to need and order these in a reasonable bulk so you don’t get stuck.
Manage the Risk
There is a risk here that the part won’t get used in the end and you’ll be left with parts you don’t need.
But this risk is smaller than not being able to get the parts for over a year, and reselling is always an option. In fact panic buying and chip brokers are making the chip shortage situation worse by buying lots of stock to sell at higher prices (similar to concert ticket reselling sites). Larger companies are also buying ahead which causes further problems. The effect is similar to petrol shortages or supermarket panic buying and this is causing a snowball effect.
The chip shortage situation means you can’t predict which of your parts will still be available between you creating your first prototype through to volume manufacture. If your design something that needs a few thousand of a part for prototypes, A and B models, and small batches, these quantities can soon by 40+ weeks out once you are ready to move onto the next stage.
Equally when you launch your product if you start slow and order a few 100 you can’t now suddenly ramp up production to 100,000 units within a few months, it’s impossible. Unless of course you have enough money to talk to the big players in the marketplace.
But invariably if you’re a start up your venture capital is highly unlikely to cover you for half a million products where the components are going to take 18 months to arrive.
Sadly, this means a lot of innovation potential is being wasted as a result as some new players are being nudged out the market by these significant changes.
What this really means is you need to commit. You can still succeed but you need to be 100% invested in the project and clear on your plan. The current climate has made it much harder to ‘dabble’ in an idea by making an MVP (Minimum Viable Product) or creating a small batch of 10-100 because you’ll end up having to redesign it again or wait years for the parts you want.
Words of encouragement for a time of chip shortages
We all need some good news these days and the truth is while this situation is difficult there are so many ways to adapt, like the ways mentioned at the top of this article. Here are some other things to help you keep some perspective.
The tech industry is booming
There are so many opportunities for new tech products. From Artificial Intelligence (AI), to IoT and smart home technology. The possibilities are endless for the right entrepreneur.
We have seen success stories
Here at Ignys we are working with companies going through this design process right now and we are guiding them through it! It’s very possible to still make your product a success if you adapt accordingly.
Everyone is in it together
The truth is even the big companies are affected by the this too and the whole world is looking at solutions. It may take a while, but hope is on the horizon. There are many ways you can get business support from using angel investors, crowd funding platforms and government loans. You can find advice on making a success of your business and your product online in so many different places.
We can help
Do you need help navigating towards product success during the chip shortages?
If you need to talk through your project and have questions about the design process and how to navigate all the changes book a discovery call with us to talk through your project and get some advice.
Authorship: This article was written with the knowledge of Steven Richardson, senior electronics engineer at Ignys, who has a deep passion for electronics design and take a particular interest in microprocessors, embedded systems and analogue electronics as well as further tips from other engineers. Read more in our meet the team blog.