For many reasons, 2020 has been a challenging year for the semiconductor industry. Electronic component manufacturers started out grappling with the economic impact of the U.S.-China trade war. Then, the coronavirus pandemic began and introduced unprecedented operational and logistics disruption into the sector.
However, as the year rolled on, the world turned to advanced technology to cope with life in the "new normal." Companies and schools embraced remote work and learning tools to halt the spread of the pandemic. Employees, students, and organizations purchased new computing hardware to facilitate the transition. In addition, consumers turned to online platforms to buy groceries, interact with distant family, and stream video content.
Together, these developments facilitated digital transformation that should have taken years in just mere months.
Since semiconductors are the bedrock of modern technology, the sector not only rebounded quickly from COVID-19 but enjoyed meaningful year-over-year growth because of robust demand.
As the recent digitalization wave has not yet crested, experts anticipate the global semiconductor market to expand by 21 percent annually in 2021.
That said, manufacturers (OEMs and CMs) should be aware of multiple factors that may yet complicate part sourcing, availability, and costs in the near future.
Here’s a look at the technologies, semiconductor trends, and geopolitical developments that will shape the electronic components field next year.
Auto Vehicle Production Will Lead to Unforeseen Shortages
The coronavirus outbreak had a significant, deleterious impact on the worldwide automotive industry. Simply put, when the world went into lockdown there simply was no reason to buy an automobile. This led to a staggering drop off in auto sales during 2020.
However, by the third quarter, car manufacturing resumed, and with it, consumer demand began to recover. As the auto industry revival went on, electric vehicles (EVs) emerged as a key driver of the recovery.
The world’s largest EV maker delivered a record number of personal transports in Q3. Similarly, legacy carmakers experienced intense interest in new EVs they intend to launch next year. Market analysts expect the wave that began this year to pick up significant steam in 2021, with battery-powered personal transport sales rising 70 percent annually.
What does this mean for the component industry? Because both traditional and electric vehicles house multiple, complex electronic systems composed of advanced semiconductors, the resurgence in auto production is already leading to a shortage of component availability.
Shortages in this particular vertical certainly carry drastic consequences. Original component manufacturers (OCM) know this and create production buffers to offset any such shortage. However, the pandemic placed unprecedented strain upon semiconductor companies in general, and specific demand in the auto industry in particular. No amount of shortage offset strategy could have prepared any OCM to plan appropriately.
Where does that leave things for 2021? With the auto industry already in full swing, components in this vertical are now a prized commodity. Car makers have greatly increased their orders for vehicle microcontrollers, integrated circuits, cabling, touchscreen interfaces, fuses, and sensors next year. This, inevitably, led most OCMs to cap out on predetermined shortage offsets. As a consequence, professional buyers will likely see constrained availability and sharp price fluctuations for those components in 2021.
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5G Will Bolster Semiconductor Technology
Although wireless carriers worldwide have been rolling out their fifth-generation mobile data networks since early 2019, 5G hit an inflection point in 2020. Providers in Africa, North America, Asia, Australia, and Europe introduced hundreds of millions of people to high bandwidth, low latency mobile data networks.
As the technology becomes more accessible by 2021, mobile device makers will see a considerable increase in new product demand. Canalys reports 544 million 5G-enabled smartphones will ship next year. Gartner also predicts the forthcoming availability of fifth-generation network-compatible laptops will prompt widespread business desktop to notebook computer conversions.
The technology’s impact is not limited to the consumer electronics market. The ongoing deployment of 5G will create massive Internet of Things (IoT) networks that will support automated factories, smart buildings, and autonomous vehicles.
Electronic component makers are addressing this unprecedented market growth by greatly expanding their fifth-generation networking semiconductor portfolios. However, those components will be more expensive than older parts because of the technology's relative newness.
The result of all this for both semiconductor manufacturing and industrial companies doing research and development in the area of 5G? There will be a rush to secure components both old and new. Some say that this rush has already begun and certain manufacturers have already filled out bidding quotas for parts.
How to Mitigate Semiconductor Industry Volatility
Flare-ups in the trade war and ongoing surges of coronavirus cases made the semiconductor industry’s visibility extremely murky in 2020. Unfortunately, global commerce tensions and the pandemic will not magically disappear on January 1.
That said, electronics manufacturers can still take action to fortify their operations against 2021’s supply chain uncertainties. Firms, especially small and medium-sized enterprises (SMEs), should diversify the sources of their materials to make their operations more resilient.
One of the best ways to do this is by securing new supply chains as we prepare for Q1 2021. How?
Like the end-markets they serve, SMEs should embrace digitalization as a solution to semiconductor industry volatility.
Online electronic components marketplaces like SinLinElec offer access to thousands of fully traceable suppliers and provide global shipping. It even offers a digitalized process for RFQs (request for quote). By using web-based platforms, firms can order millions of professionally inspected parts quickly and easily. Having this capability is critical in an era when part makers can be waylaid by new self-quarantine mandates or regional travel restrictions.
Ideally, 2021 will not have the same level of upheaval and disruption seen in 2020. But if it does, SMEs with resilient supply chain operations will have the resources and support to manage old and new headwinds.