San Francisco Chronicle - (Sunday)
Chip shortage hurts Bay Area companies
Pleasure is a profoundly important part of the human experience, but without the right microchips it’s difficult to deliver, says Michael Topolovac, CEO of San Francisco sex toy maker Crave Innovations.
His company sells selfpleasure devices, some of which are designed to be small and discrete enough to wear around the neck like jewelry and require precise electronics design. Topolovac stocked up on critical chips and components that his products are built around months ago, anticipating a shortage that is now a reality. While his stocks are holding, without them his company wouldn’t be able to deliver the pleasure it promises. Other Bay Area companies are now finding themselves scrambling for the tiny parts that run everything from medical devices to precision aerospace clocks and beyond. A slowdown in semiconductor and other electrical components manufacturing is rolling through the global supply chain and continues to barrel into a range of carefully designed products that depend on the tiny bit of plastic and metal, without regard for industry.
The stopstart economic cycles foisted on the global supply chain by the pandemic are partly to blame and the squeeze on computer chips and electrical parts is being felt keenly by automakers that have been forced to idle some plants because of the supply bottleneck. Even tech giants like Apple have been forced to delay production as demand continues to outstrips supply.
But computer chip companies find themselves scrambling for items we use everyday from the kitchen to the bedroom and beyond. Some small and midsize Bay Area companies are worried the shortages could kneecap the economic comeback after a year of massive disruption brought on by the coronavirus.
Crave CEO Topolovac said his company started stocking up on parts like microcontrollers — essentially tiny computers — late last year and into 2021 in anticipation of a shortage. Now he said he’s being told some parts that normally take weeks to get can’t be delivered for a year, or more.
“If we hadn’t bought that far ahead it would have been fairly catastrophic. We’d have to stop shipping products,” Topolovac said.
Fairly common and less complex parts like electronic resistors can be sourced from different suppliers, but parts like microcontrollers can wreak havoc on a product if they are in short supply.
“They are usually designed around one family of products from one manufacturer,” Topolovac said. One missing part could mean an entire product or product line has to be scrapped or redesigned if it is central to the product and a replacement can’t be found.
Last year, many large electronics factories in Asia and elsewhere that the global electronics industry depends on shut down completely because of the rapidly spreading virus, throwing global chains reliant on justintime delivery into chaos.
Now with vaccines being rolled out, many factories have reopened, albeit with partial capacity. Topolovac said he was beginning to feel more hopeful but now, “All of a sudden I can’t get an 80 cent part for a year and a half.”
Why that is the case is largely because of the whiplash nature of supply and demand for the tiny, highly complex parts, some of which can only be made in a few locations on Earth, according to Professor Christopher Tang, who studies global supply chain management at UCLA.
With the onset of the pandemic last year, demand plummeted for products like cars and the chips required to run their onboard computers. Demand shifted instead to devices to help the world work from home like tablets, appliances and smart devices, Tang said.
Now with vaccines getting out and a demand returning for cars and other items that disappeared last year, manufacturers mostly cannot fill the rapid changeover in the market.
“The economy is opening up,” Tang said. “Everyone is ordering and that’s why there is a shortage.”
Companies like Apple, which has been forced to delay the delivery of its iPhone 12 because of the chip squeeze, can use their purchasing power to essentially cut the line, Tang said.
But the tiny nanochips Apple uses in it’s products can only be made at specialized facilities and other industries, like the auto industry, are finding themselves competing with other industries for less advanced and more commonly used chips, according to Tang.
Tang said the current shortage should be smoothed out by the end of the year, and any lingering effects will be gone within two years.
Market intelligence firm IHS Markit has also said the semiconductor market will remain tight into 2022.
To ramp up supply the Biden administration has pledged $50 billion to bolster the country’s chip making abilities as part of it’s planned infrastructure bill. U.S. manufacturer Intel said it plans to ramp up production of chips for the auto industry by the end of the year.
But with about 80% of the world’s chips being made overseas, according to Tang, production, particularly in Asia, needs to increase as well.
That isn’t happening yet, according to Richard Walkup, CEO at Piranha, Electronic Manufacturing Services in San Jose.
Walkup’s company designs, builds and sources a range of electronic devices and components, from guitar foot pedals to medical devices and specialized clocks for jets at locations in Asia and San Jose. During a recent trip to electronics factories in Asia, Walkup said most were operating with a third of the staff because of coronavirus restrictions
“There’s lots of capacity out there in terms of equipment capacity,” he said. “The constraints are on human capacity.”
Walkup said while he stocked up on critical components before the shortage took hold, he too is seeing delivery times of up to a year with suppliers saying they can’t guarantee even those deliveries. “None of us would have thought we’d be this far into this year and still struggling,” Walkup said.