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Understanding the Global Electronic Component Shortage

Understanding the Global Electronic Component Shortage

With no sign of the global electronic component shortfall being resolved, Faki Saadi of SOTI discusses the impact on connected device manufacturers and end users.  

Vital component shortages have been hindering the manufacture and integration of connected digital devices and systems since 2018. While the rise of Industry 4.0, coupled with the burgeoning production of chip-heavy vehicles and smart appliances, means demand for such components has never been higher, there simply aren’t enough semiconductors, capacitors and other parts to go around. This has implications for both OEMs and end-users. 

SOTI is a Canadian-headquartered enterprise mobility solution provider, with a strong focus on IoT and connected technologies. DirectIndustry e-magazine caught up with Faki Saadi, SOTI’s director of sales in France and the Benelux countries, to find out more about the problem, its implications and ways of managing it.   

DirectIndustry e-magazine: What are the main causes of the shortages that connected object manufacturers are currently facing? And how long will they last?

Faki Saadi: You have to go back to early 2018 to locate the origins of the problem. At this stage, most of the world’s semiconductor companies were failing to invest enough  in their manufacturing capacity, which meant there was a gap between supply and demand. By the end of 2019, following an increase in investment, production was starting to ramp up. Most industry experts thought that by early 2020 the issue would be sorted, and that OEMs would start to receive the deliveries they were calling for. 

Then came the Covid-19 pandemic and things became even more complicated. You have to remember that the Chinese city of Wuhan and its environs, where the virus started, is a very important region in terms of the semiconductor and microchip supply chain. When this area was locked down it impacted the delivery of components such as semiconductors, capacitors and resistors, as well as memory. The problem was exacerbated as the pandemic spread and more and more factories closed. 

It’s hard to say how long the shortages will last. In 2021 economies have restarted, so demand for components is on the rise. This is compounded by trends such as the electrification of the automotive sector. Bear in mind that conventional cars need 2000 to 3000 capacitors, whereas electric vehicles need an average of 22,000. On top of this smartphone sales are picking up, more and more people are working from home, the US-China trade war is ongoing, and there are still supply chains issues to resolve. I think it will take years for the industry to adapt.    

DirectIndustry e-magazine: In the light of such shortages, how should companies plan their strategy for managing and using connected objects? Are their ways to lessen the impact?

Faki Saadi: Firstly, they need to have a strategy in place to ensure all their IoT devices are under supervision and are being managed as an asset. They need to acquire software, for example, to monitor devices, and they need to make sure batteries are regularly checked. According to a recent report by SOTI, employees lose an average of 12 hours per month due to downtime issues affecting their mobile devices. By reducing downtime (and efficiency in general), companies can do more things with the same number of connected devices. 

Companies also need to prioritise the types of device they really need for their operations – they should have had strategies in place for this before the pandemic. They need to ensure they have good relationships with suppliers, and they need to be sourcing connected objects from multiple suppliers. Problems occur when they rely on a single supplier, because suppliers themselves have priorities. When demand exceeds supply, they will always look after their best customers.   

Faki Saadi, SOTI’s director of sales in France and the Benelux countries.   

DirectIndustry e-magazine: Approximately 80% of global manufacturers are facing challenges in producing IoT products. How are they managing the shortage of components? 

Faki Saadi: Again, this all relates to having a good relationship and exchange of information with your suppliers. IoT product manufacturers need to keep a constant eye on their product development and ensure they keep up with the latest component technology. Many manufacturers fall into the trap of relying on older components. Because component manufacturers have the highest margin on their latest components, they will always prioritise their production over older ones.  

DirectIndustry e-magazine: What is the situation in France compared to the rest of the world? Are French tech manufacturers and end users facing the same issues?

Faki Saadi: The situation in France is no different to the rest of the world. In fact, it’s worse than the situation in developing countries, because French businesses and consumers have such a heavy reliance on products that contain semiconductors and other electronic components that are in such short supply. Just like in other Western countries, connected devices are part of everyday French life – we can’t live without cars, TVs and computers, and that’s before the shift towards electric vehicles.        

DirectIndustry e-magazine: What impact will the component shortage have on companies’ use of IoT and their digital transformation? 

Faki Saadi: Firstly, end use companies will prioritise the IoT devices that they need most, which may slow down the transformation process. From a manufacturing perspective, go-to-market products will be delayed. And I think we may see the quality of IoT products drop because you will have OEMs increasingly diversifying their supply chain and integrating new parts which may be inferior to ones they would normally use. This means the way end use companies view those products will also change.