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Prospects of Moving Past the Electronic Component Shortage

For at least the past 18 months, a wide variety of businesses that rely on direct purchases of electronic components to keep their operations going have weathered a global shortage. Demand surged dramatically ahead of supply in 2017, and has more or less remained in overdrive since that time. While this paucity of availability does not apply to each and every product within the component market, it affects enough of them to create domino-effect shortages or other problematic issues in industries ranging from the automotive sector to aerospace and defense.

As of early 2019, it remains unclear how much longer this drought will last. There are many factors at stake - some of them purely economic, others geopolitical in nature. For the latest AMETEK ECP blog post, we decided to take a closer look at this matter due to its importance to both us and our customers.  We’ll look at the origins, current status, the biggest consequences and, perhaps most significantly, its prospects for slowing down sometime in the near future.

Origins of the shortage: Repeating the past?

The last time the electronics industry saw a similar issue of proportions near or equaling the current shortage was 1999. According to IoT For All, a deficiency in tantalum availability and other troubled raw-material inventories caused the issue back then, and the resultant year-long lead times suppliers were quoting to original equipment manufacturers created major problems for numerous players in the tech universe. (Given that this coincided with the fever pitch of the dot-com boom, which no one at the time knew was doomed, such a reaction isn't particularly surprising due to these startups' massive hardware demands.) By 2001, the shortage hadn't disappeared but was beginning to turn around, although it did over the next few years.

Flash-forward to 2017. Although many economies with strong tech industries, like the U.S., were doing well (and, by and large, continue to do so), the roots of a new component shortage were already in place. Two of the biggest factors that accelerated this occurrence included the growing popularity of hybrid and electric automobiles - which require more capacitors, semiconductors and similar components to run than conventional cars - and the rise of smart devices and the internet of things, according to Supply-frame Hardware. The increasing sophistication of technology means more parts are required to keep some of the most ubiquitous consumer electronics functioning at a high level, ranging from smartphones and tablets to cars' remote door locks.

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Bottlenecks in the supply chain

Few economic matters have dominated the news cycle during the past year quite like the trade disputes between the U.S. and numerous other nations, most notably China. Implemented by the U.S. at the behest of President Donald Trump, these duties are intended to reduce the adverse effects of foreign competition in fields ranging from steel and aluminum manufacturing to foods, beverages and paper products. Industry Week pointed out that China's government responded quickly and promised to enact tariffs of its own on electronics, but thus far has kept its retaliation confined to scrap aluminum, steel piping, ethanol and numerous foods.

Aluminum and steel both factor prominently in the manufacturing of electronic components, as well as many of the machines and vehicles for which those parts provide power and functionality. The tariffs put serious burdens on the supply chain, leading to delays that affect the entire production cycle.

Other raw materials used in numerous electronic components are also experiencing problems apart from the tariffs. Palladium, which is used in PGM/BME ceramic capacitors alongside silver, is extremely expensive. Meanwhile, tantalum, much of which now comes from the Democratic Republic of the Congo, raises serious ethical concerns surrounding its extraction due to local militias mining it with child labor and selling it to fund their violent campaigns, as Supply frame noted. Less disturbing but equally disruptive to the component market are the polypropylene and activated carbon shortages.

Looking for solutions

Projections from major investment firms including Morgan Stanley and Stifel don't expect the component shortage to show signs of turnaround until some time in 2019. Production capacities have gone up from the lows they experienced at the shortage's peak, but still aren't where those using capacitors, interconnects, semiconductors and similar parts need them to be. As is the case with so many issues in manufacturing and electronics, the component shortfall won't end with the implementation of a single solution. A multifaceted approach is necessary.

Recycling and reusing raw materials wherever possible will help drive costs down and reduce lead times. Tantalum is recyclable, as is cobalt, which is similarly rare and just as important in developing corrosion-resistant alloys for various components. It's also important to maintain positive relationships with suppliers despite the pressure the shortage brings to both parties, or to seek a new provider if this issue has strained the relationship. According to Industry Week, OEMs and other firms must not allow issues like this to send them into panic mode, as doing so can lead to poor financial decisions or other flawed strategies. Last but not least, partnering with an OEM like AMETEK ECP can help businesses suffering from the component shortage find effective alternative alloys for their component needs due to the experience and ingenuity of our in-house metallurgists.



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