Chip delays reach crisis territory; Apple, Qualcomm and others are affected

The worldwide chip shortage is about to hit a benchmark indicative of more serious problems ahead for tech companies. This benchmark measures the lead times for chip orders, or the time it takes between ordering semiconductors and actually receiving the shipment. Bloomberg reports that this measure hit 17 weeks last month according to Susquehanna Financial Group which says that it is a sign that users are getting desperate to obtain the needed components.

Susquehanna Financial notes that the 17 weeks is the longest period of time it has recorded for this measure since it started tracking it in 2017. Based on that figure, the research firm says that when it comes to purchasing sufficient chips, consumer electronic firms and automobile outfits are in "the danger zone." Last year at this time, the lead time was 12.53 weeks.

Susquehanna analyst Chris Rolland disseminated a note to clients yesterday in which he wrote about lead times for analog chips, power management chips, and others. "All major product categories up considerably. These were some of the largest increases since we started tracking the data," he stated. Apple has said that it could lose up to $4 billion in revenue during the current quarter thanks to shortages of chips and other components, while automakers are are on track to report a revenue shortfall of $110 billion this year.

Rolland wrote that demand for chips might be overstated by actions taken by customers afraid of missing out on supplies. "Elevated lead times often compel ‘bad behavior’ at customers, including inventory accumulation, safety stock building and double ordering. These trends may have spurred a semiconductor industry in the early stages of over-shipment above true customer demand."

The analyst said that the 17 week lead time expanded from the previous 16 week lead time and marks the fourth consecutive month that lead time has risen by a "sizeable" amount. Power Management chips lead time weighs in at 23.7 weeks, up about four weeks over the last month. Industrial microcontrollers order lead times have recently risen by three weeks.

Susquehanna says that delays are longer for smaller manufacturers; for example headphone manufacturers have lead times longer than 52 weeks! The expanded lead times has forced firms to redesign, and even drop projects. Rolland says that 70% of the companies he tracks in the chip industry are reporting expanding lead times while 20% have seen lead times drop.

NXP Semiconductors NV, a company that supplies chips to auto makers, has seen lead times rise from 12 weeks late last year to 22 weeks. And STMicroelectronics, another chip supplier for the auto industry, had its lead times rise by 4 weeks in April to 28 weeks.

Taiwan, the home of the world's largest independent foundry TSMC, has been dealing with a couple of issues that could impact chip production in the country. The number of COVID-19 cases in the country has been rising and in addition, a drought has impacted the country. Water is an important ingredient when it comes to chip making and TSMC has ordered huge deliveries of the ultra pure water required to run its assembly lines.

TSMC has plenty of important customers that rely on it to turn chip designs into chips. Among those firms are Apple, Qualcomm and MediaTek. Today, Taiwan’s Centers for Disease Control raised the island's alert level which spreads COVID-containment measures to the whole country.

Also today, Taiwan's Water Resources Agency said that the country needed to use more aggressive water-saving methods thanks to the low amount of rain that has fallen in the country. TSMC responded by saying that it will continue to tighten up its water usage, although it doesn't believe that it will have to make any changes to its operations even with the countries new measures announced today.