Gartner targets chip supply normalcy by 2Q22

CEOs and experts have variously predicted normalcy will return to the chip supply chain anywhere from eight months to two years, but Gartner said that point will occur by second quarter 2022. (Getty Images)

The entire planet-- literally, it seems-- wants to know when the chip shortage will improve. Various experts have recently predicted another eight months to another two years.

Respected analyst firm Gartner comes out mid-way in that range, saying Wednesday that the shortage will persist through 2021 and will recover to normal levels by the second quarter of 2022. Some supply constraints will even extend until fourth quarter 2022, Gartner predicted.

Gartner reported recently that some panicked chip purchasers have been forced to pay three times the normal price to obtain critically-needed chips.

“The semiconductor shortage will severely disrupt the supply chain and will constrain the production of many electronic equipment types in 2021,” said Kanishka Chauhan, principle research analyst at Gartner, in a statement. “Foundries are increasing wafer prices, and in turn, chip companies are increasing device prices.”

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Notice that Chauhan said constraints will be on “many electronic equipment types,” which expands on the widely-held perspective that the biggest victims have been vehicle manufacturers who have temporarily closed some plants globally.

The chip shortage started primarily with devices such as power management (used in cars, but many devices), display devices and microcontrollers, that have been made on legacy chip nodes often 28 nm or greater. Those have been made at 8-inch wafer foundries, which have suffered their own limited supply.

gartner chip shortage chart

The shortage lately has extended to other devices, Gartner said, ticking off capacity constraints and shortages for substrates, wire bonding, passives, materials and testing, all of which affect the supply chain beyond chip fabs.

Substrate capacity constraints could even extend until the fourth quarter of 2022, Gartner said.  Silicon is the traditional substrate used in chipmaking.

Gartner in an earlier note to its clients said automakers will continue in “severe shortage” aggravated by the February ice storm in Texas that caused a three fabs to shutdown and a Renesas fab fire in April.

What may be new to many is that Gartner recently said that wired communications and compute manufacturer inventory levels will slip into (or already have slipped into) severe shortage, joining automotive and wireless communications previously.

Gartner also put a range of chip types in severe shortage in the first quarter: analog, MPU, MCU, GP Logic, Non-Opto Sensors, ASIC/ASSP and Non-memory. The only ones better off, in moderate shortage were discrete, memory, and optoelectronics.

Lead times to order and receive chips have increased to at least six months for most chip types, Gartner added, up from three to four months in many cases.

“Purchasing chips is now a bidding game,” Gartner told clients early in the first quarter. The firm noted that buyers are paying three times the normal prices.

Major price increases are expected in 8-inch wafers and devices, from 10% to 45%, Gartner said.

chip supply chain graphic, gartner

In late April, Gartner advised supply chain leaders to adapt to the chip shortage by deploying various strategies, including paying chip vendors up front to guarantee supply much later.  Also, Gartner urged client to diversity their supplier base and leverage partnership with resellers and distributors.

Most scenarios about the cause of the auto chip shortage include the shortage of car sales in spring 2020, causing automakers to stop buying; then a sudden increase in auto buying last August led to increased chip orders; most carmakers ordering more chips found chipmakers had moved to supplying chips for other products and would need at least six months to fulfill orders.

However, Gartner analyst Gaurav Gupta has included other events in the cause of the shortage, including the pandemic’s creation of an unexpected demand for consumer electronics with higher device content, the arrival of 5G which required more semiconductors and the U.S.-China trade war in mid-2018 that led to Huawei being placed on the U.S. Entity list, which caused OEMs to pile up inventory.  The Trump administration also placed Semiconductor Manufacturing International Corp. (SMIC), based in Shanghai, China, on the Entity List in December, further worsening the supply/demand balance, Gartner said.