Here’s a follow up to Gady’s post on component shortages for electronics firms. The Wall Street Journal reports that lead times for a variety of components have gotten fairly long (From Snowmobiles to Cellphones, a Scramble for Parts, Aug 5). Here’s the story in pictures:
Lead times have been building for the past 12 months for certain key components, according to research firm iSuppli Corp. Waits for four types of transistors, for instance, which direct the flow of electrical currents and are used in everything from cars to handsets to washer-dryers, ranged between six and ten weeks in July last year, iSuppli says. Now waits last 18 to 20 weeks—a level where they’re expected to stay for the rest of the year.
These shortages have had a number of consequences. Polaris, a maker of snowmobiles and all-terrain vehicles, has been altering its product mix, building fewer models with power steering since they have run low on the necessary chip. GE reports that component shortages have cost its medical equipment unit $50 million in sales last quarter. Of course, if there are losers, there must also be winners:
One beneficiary of the shortages is Fusion Trade, an independent distributor of electronic parts and components. Sales are up 120% compared with last year, and are on track to exceed $300 million for the year as more technology and manufacturing firms look to the Andover, Mass.-based distributor for components. Normally the firm has about 500 to 700 customers a month; now it’s closer to 1,000, said its chief operating officer, Paul Romano.
Mr. Romano said capacitors and diodes are the most sought-after cosmponents. As a result of shortages, the prices he pays to procure those items have increased anywhere from 50% to 500%. Capacitors that cost 25 cents a year ago now go for up to $1.50 or higher, he said.
This article at least doesn’t irrationally blame shortages on lean operations. It more properly notes that manufacturers have been slow to ramp up. It will be interesting to see how long these shortages last. Will suppliers bring on capacity slowly so that prices stay firm or will a “gold rush” mentality cause too much capacity to come on too quickly? Such boom and bust have happened before in high-tech components such as memory chips (which are also currently in short supply — see iSuppli warns of DRAM shortage, higher prices, Aug 10, Computer World). There may be reasons to believe that prices will be high for a while. First, at least in the US, not everyone believes that the recovery is going to stick. That could dampen invest worldwide as managers wait for a little more certainty. Second, even if everyone believes that the recovery is for real, not everyone may have the capital to invest.