Alarming Semiconductor Shortage Pushes Chip Order Wait Times Into The Danger Zone

Semiconductor Wafers
It times of crisis, it is often said that things will get worse before they get better. That does not always hold true, but it sure seems to apply to the global chip shortage, which may not see a full recovery for years. While there is light way at the end of the tunnel, lead times on chip orders have been increasing to concerning levels.

The lead times are not just increasing in one or two chip categories, either, but on all the major ones, according to Susquehanna Financial Group. The outfit began tracking this kind of data four years ago, and says the current lead times are it the longest they has been. Described as now being in the "danger zone," the firm says lead chip lead times jumped to 17 weeks last month.

A lead time is how long it takes from placing an order to receiving the product. The increased wait period has some industries stalling out. For example, some automaker factories are stuck in limbo as they wait for chip orders to arrive, to power things like autonomous technologies and other high-tech amenities found in modern vehicles.

There is a ripple effect to the shortage, as well.

"Elevated lead times often compel ‘bad behavior’ at customers, including inventory accumulation, safety stock building and double ordering," Susquehanna Financial Group Chris Rolland wrote in a note. "These trends may have spurred a semiconductor industry in the early stages of over-shipment above true customer demand."

Think of it as panic buying, not completely unlikely what we saw with toilet paper and hand sanitizer at the consumer level, when the pandemic first hit. This could be part of the reason why semiconductor lead times are increasing so dramatically in some sectors. Orders for power management chips extended nearly 24 weeks in April, while some headphone makers are looking at waiting a full year.

Some companies have taken to redesigning their products amid the chip shortage, while others have even cancelled the development of certain gadgets altogether. It's just a crummy situation—according to Rolland, lead times have now expanded a "sizable" amount for four months in a row.

On the bright side, chip makers are pouring billions of dollars into expanding their manufacturing output and capabilities. It will take some time for those investments to have an impact, though. TSMC said supply might not catch up to demand until 2023, while both IBM and Intel also indicated it could take years.

"So frankly, we are looking at couple of years before we get enough incremental capacity online to alleviate all aspects of the chip shortage," IBM president Jim Whitehurst recently said. "We're going to have to look at reusing, extending the life of certain types of computing technologies, as well as accelerating investment in these fabs, to be able to as quickly as possible get more capacity online."

When we finally get past this, the industry should be in better shape to handle these kinds of situations. TSMC is spending $100 billion on improving its chip capacity, while Intel is making huge investments as well, including a $3.5 billion fab expansion in New Mexico. So things should get better, they just might get worse first.