A misunderstood crisis: the semiconductor "shortage"
At Evertiq Expo Gothenburg, industry experts Dieter Weiss and Dr. Mareike Haass from in4ma discussed the misunderstood semiconductor "shortage" and its severe impact on the EMS sector. They explained how panic buying inflated demand, leading to an inventory surplus and revenue struggles in 2024. They also stressed the need for immediate action to stabilise the market for 2025.
According to Weiss, the semiconductor shortage that dominated headlines in recent years was largely misunderstood. He likened it to the 2020 toilet paper panic, where a rumour of scarcity led to widespread stockpiling.
"It was a shortage only for a very limited range of products – primarily microcontrollers used in the automotive industry," Weiss explained.
Outside of this, there wasn’t a significant overall shortage of semiconductors. However, panic buying swept the industry, as companies rushed to secure entire bills of materials in fear that a single missing component could halt production. This behaviour inflated demand artificially, with companies over-ordering in hopes of securing more parts.
“Everybody thought, ‘Well, if there's only 100 parts available and I normally need 10 parts. If I just now increase my order to 20, I might get more.’ But everybody thought that way. So it was an artificial inflation of demand.”
The consequences for 2024
As the market scrambled to meet inflated orders, companies built up inventories at an unsustainable rate. OEMs began pulling back on orders by mid-2023, and some have even deferred them into 2025. Weiss pointed out that the EMS industry is now grappling with this issue.
"The EMS industry is asking, ‘Where have all the orders gone?’ The answer is simple: You manufactured them already in 2022 and 2023."
The result, Weiss and Dr Haass agree, is that 2024 is shaping up to be a challenging year for the EMS sector.
"We have to live with the fact that 2024 will be, in terms of revenue, a disaster," Weiss noted, pointing to how companies like Note have already revised down their revenue expectations for the second half of the year.
Not just the major players are under pressure. Even though many of them are suffering in silence, smaller EMS companies are also feeling the pressure. Weiss and Haass pointed out that the strain on smaller firms can be seen in the uptick in mergers and acquisitions (M&A).
“A lot of M&A activity is happening right now because companies think selling is the only solution,” Weiss said.
When asked whether these patterns were mirrored in the US market, Dr Haass confirmed that similar trends were occurring across the Atlantic.
“In the last years, there has been a lot of concentration, with many large EMS companies expanding through acquisitions and adding more production sites. There has also been a large focus on military contracts. This process is ongoing, but even in these cases, we have seen revenues slow down,” explained Dr Haass.
While 2024 may be a year of struggles in terms of revenue, Weiss and Haass are adamant that the industry cannot afford to simply wait for things to improve in 2025. "No, I would not say lean back and hope for a better 2025," Weiss cautioned.
Instead, the EMS industry must take action now by engaging with its customers. One crucial step, Weiss suggested, is convincing customers to maintain normal inventory levels. If customers decide to run their inventories down to zero before reordering, the EMS industry could face even worse challenges.
The time to act is now, Weiss stressed, urging companies to push for new orders to be placed by October to ensure a smoother start to 2025. This proactive approach would help to normalise inventory and production lead times, setting the stage for a more stable first quarter.
On October 24, 2024, Dieter G. Weiss and Dr. Mareike Haass will be back at Evertiq Expo – this time in Warsaw, Poland. The experts will provide a presentation focusing on the distinctions between the EMS landscapes in Western Europe and that of Central and Eastern Europe.
