Engineers specify parts based on component abilities, but due to fluctuating markets, another ability—availability—is becoming a deciding factor.
In the past, engineers pursued MBAs in order to move into management positions. These days, even those whose passion lies strictly in the design room could find business tools such as market analyses to be useful weapons against supply chain volatility.
Here’s a look at how engineers are using market data to add resilience to their designs, ensuring that their products can make it to market in the intended timeframe.
Market volatility for electronic components
Demand for electronic components has fluctuated over the past few years. The pandemic resulted in decreased demand for consumer goods such as computers, smartphones and tablets. On the other hand, the movement toward electric vehicles (EVs) has stimulated growth in other areas. IDTechX predicts a steady 9% annual growth in demand for automotive semiconductors over the next decade, with a sharper increase over the next year. Nearly one-third of the components in an electric powertrain are dedicated to the battery management system (BMS), which is typically a system-on-a-chip (SoC). The entire automotive sector, both EVs and internal combustion engines, is increasing its use of high-end microcontrollers (MCUs), leading to a dearth of computer chips for other applications. Due to high demand and limited supplies of raw semiconductor materials, some of these devices have lead times of a year or more.
In addition, the proliferation of IoT devices continues to increase the demand for smart sensors, communication chips and MCUs. A 2022 Forrester IoT report predicts that it will take some time for the IoT market to regain the supply of chips needed to meet demand. Conversely, the lower demand for personal electronic devices has produced an oversupply of memory chips and related components, which some market analysts believe will continue into the fourth quarter of 2023.
One global distributor expects the prices of basic semiconductors to remain steady while the cost of high-end chips will increase by up to 15% over the next year. Despite that, the semiconductor industry as a whole could see a slight decrease in revenue, which, as we’ll see, could curtail its efforts to ramp up production.
Analyzing supply and demand
In order to navigate the sea of uncertainty, companies are turning to industry research tools and expecting their engineers to use market analytics such as Altium’s Electronic Design to Delivery Index (EDDI) to assist with component selection. These analytics show industry trends that may have short- and long-term impacts on component availability, prices and lead times.
Gavin Schalliol, senior product manager at Altium, explained to engineering.com how engineers can take advantage of such tools. “Our EDDI data could have told you that supply for various component categories was rapidly decreasing in early 2021, starting in late 2020. If you were attuned to these trends, then you could have taken proactive actions such as ensuring that you have supply stock in place before your manufacturers go to allocation,” Schalliol said.
Since the pandemic began, semiconductor supply and demand have been in flux. The May 2023 EDDI Report shows that supply was inadequate for over two years, with supply finally meeting demand in the third quarter of 2022, thanks in part to a decrease in demand. The following graph shows that demand is beginning to recover, which may lead to additional shortages in the near future. (An index of 100 represents the normalized pre-pandemic value.)
Supply chain and inventory management
Many parts distributors are becoming “one-stop shops” that provide design engineers with various services. Some offer cloud-based design tools with integrated supply-chain management, allowing engineers to design based on component availability and enabling companies of all sizes to design, acquire parts for prototypes and manage supplies for production.
From a proactive position, Altium’s Supply Chain Resilience tool scans a BOM and helps identify parts that are having supply chain problems. On the reactive side, it can let designers know when difficult-to-find components become available.
Partnerships are key
Large companies that partner with component manufacturers may have dibs on the stock, but they still need to stay abreast of the suppliers’ capital investment plans to ensure the continued availability of needed parts. Likewise, they need to be sure to keep suppliers informed of their own long-term plans so the manufacturers can make production and inventory decisions accordingly.
Small-to-medium-sized companies that buy from distributors should use components available from multiple sources and build strong relationships with their suppliers, many of whom are now offering additional services such as supply-chain management.
Will the CHIPS Act help?
Some believe that the CHIPS Act will help alleviate these supply-chain issues, but it’s unlikely to affect semiconductor production capacity—certainly not in the near future, and probably not in the long term either. Manufacturers tend to build when profits are up and demand is predictably high; government incentives may help them decide where to build, but not if or when to build.
With the electronics industry experiencing a downturn that could result in a 19% decrease in revenue between now and the middle of 2024, and supplies of certain chips exceeding demand, market analysts predict that semiconductor manufacturers will be reluctant to invest in large capital spending projects anytime soon.
Case study: Microcontrollers
The ubiquity of microcontrollers (MCUs), from high-end AI-on-the-edge applications to low-end smart sensors, makes the category a microcosm of the semiconductor industry. The June 2023 EDDI report shows that demand for MCUs has exceeded supply for more than a year, with the gap appearing to narrow around May of 2023, as supply is just approaching its pre-pandemic level.
Notice the slight uptick in demand from May to June, which could be a sign that deficiencies will remain.
As mentioned earlier, 32-bit MCUs are in high demand within the automotive industry, which is causing a supply shortfall. On the other hand, 8-bit MCUs, which have a strong foothold in the industry, are often produced by multiple manufacturers, are easier to fabricate, and are widely available. Altium tracked MCU stock over the past three years, separating the microcontrollers by data bus width, as shown in the following graph.
Resilient design
As supply, demand and prices fluctuate, engineers will need to build flexibility into their designs. For example, using pre-assembled modules outsourced from another manufacturer removes the need to reinvent the wheel for certain functions, but it also makes the product design more dependent on other companies whose supplies may be vulnerable to market changes. Bringing more of the design in-house may take longer in the short term, but it provides more control over the bill of materials.
One way to make a product more resilient is to design a bit of redundancy into it, especially the features that rely on parts whose availability may be questionable. This offers a “Plan B” in case certain components are out of stock or have long lead times. Some circuit design packages include AI data-mining tools that perform “what-if” scenarios to evaluate the resiliency of a design against component shortages. This helps designers figure out where to build redundancy and alerts procurement specialists about critical components that should be stockpiled to ensure adequate supplies. Some of these tools use multiple factors, such as regulations, raw material costs, regional or global crises, and consumer trends to predict component prices and availability, allowing engineers to modify their designs if lower-cost alternatives are available.
Engineers specifying 32-bit MCUs may face very long lead times, which could be alleviated by adopting a more distributed processing architecture, with multiple low-end MCUs tackling an application that, under ideal circumstances, might be better handled by a single 32-bit MCU. It’s not an ideal solution, but it could get the product on the market sooner and protect against future market volatility.
The future is uncertain
In the past, consumer demand has been relatively predictable, allowing designers to select components based entirely on function. Experts predict that the uncertainty that began with the pandemic will continue for the next few years. In order to weather the current storm and hedge their bets against future unpredictability, engineers need to understand the market and its effects on supply and demand. That may not require an MBA, but perhaps a business course or two—coupled with market research tools designed for engineers—will do the trick.