Chip shortage creates frustration but more business for industry middlemen

TAIPEI – When buyers need chips in a pinch, they turn to Erik Drown, a middle man who can get spare parts in short supply.

Drown’s decades of experience are now faced with one of the worst semiconductor shortages in history. When a customer recently asked him to help him find 1,200 chips in a matter of days, Drown examined his industry contacts. He couldn’t find all the necessary tokens, but he was able to get preliminary price quotes in about half.

It’s a painful truth for companies around the world: They need chips but can’t find them. To make matters worse, typical problem solvers – chip brokers and middlemen like Mr. Drown – find themselves in some cases equally perplexed and empty-handed. However, they are busier and more profitable than ever.

“A lot of companies that would never turn to someone like me have to because if they don’t, they are not going to survive,” said Drown, director of global sourcing for Select Technology Inc., a components distributor based in Rowley, Mass.

A breakdown in typical chip distribution adds additional layers of complication to a months-long shortage that remains widespread and is likely to continue through the end of the year, chip makers, wholesalers and buyers say.

During normal times, the biggest chipmakers like Intel Corp.

or Samsung Electronics Co.

ship semiconductors directly to your affluent buyers and contracted wholesalers. The surplus supply generally went to other intermediaries serving smaller buyers. Most years, there was plenty for everyone.

But now, it is a pitched battle. Larger companies have had their direct access cut or limited. As a result, they seek additional help from wholesalers hired by the chipmakers, intermediaries known in the industry as authorized distributors.

Avnet INC.,

an authorized reseller for Intel and Broadcom Inc., has seen an increase in large buyers who previously did not need outside help locating chips. It’s uncharted territory for those customers, having to guard against supply chain disruptions or keeping an eye on a myriad of different materials, said Peggy Carrieres, Avnet’s vice president of global sales enablement.

“They want us to take care of that,” Carrieres said.

A worker makes a chip at a factory in China’s Jiangsu province on March 17.


Photo:

str / Agence France-Presse / Getty Images

Despite the shortage, higher prices and shipping volumes have driven results for distributors, who typically have a 10% markup on chips, and even higher when consulting for alternative product designs or parts. estimated Peter Hanbury, a partner at Bain & Co. who specializes in the semiconductor supply chain.

Arrow Electronics INC.,

one of the industry’s biggest players, said global component sales hit a record $ 6.4 billion in the first three months of the year, up 42% from the previous year. The Colorado-based company’s operating income for its global components business increased more than 70% during the same period. For the quarter ending March 31, Avnet said its sales were up 14% from the prior year to $ 4.9 billion.

Large buyers have also been forced to use intermediaries who rely on indirect methods to purchase components, such as buying unused chips from product manufacturers who bought more than they needed. Because independent brokers do not buy directly from chipmakers, these second-hand transactions can be more expensive and carry higher risks of authenticity.

The $ 442 billion chip industry has traditionally been turbulent. But consumer demand for pandemic changes to work and life online, coupled with a strong economic recovery, took buyers and chipmakers by surprise over the past year. The offer cannot increase fast enough. So prices have skyrocketed.

The semiconductors that power electronic displays have risen in price by as much as 40% in the first half of 2021 over the previous year, says market researcher Counterpoint Research. During the same period, the prices of some sensors and image processors used in phones and personal computers increased between 15% and 20%, estimates Counterpoint, while the prices of memory chips increased between 5% and 10%. %.

The situation is even worse for automakers, who lack chips like the microcontrollers used in vehicle ignition or brake systems. Brokers are quoting prices five times higher than before the pandemic for auto chips and, in some extreme cases, 20 times higher, said Ambrose Conroy, founder of Las Vegas-based supply chain consultancy Seraph.

Subaru cars are in a storage lot in Richmond, California, on May 14. Automakers around the world have been scrambling to find semiconductors.


Photo:

Justin Sullivan / Getty Images

Prices have risen so much that Jens Gamperl will show incredulous shoppers the wholesale price paid by his online chip-selling platform, Sourcengine, before accepting any markup. For example, a flash memory chip that would normally cost 50 cents was selling for $ 38 on Sourcengine at one point in April, Gamperl said. The next day it jumped to $ 49.50.

“The customer is always suspicious of trying to take advantage of the situation,” Gamperl said.

Prices are often kept high because companies cannot afford to wait to make purchases. Dan Hetnar, a senior buyer for a US circuit board maker, used a broker to buy about 1,500 microchips, at more than triple the typical price of $ 2.75 a piece. Otherwise, if you were pushed to go through an authorized dealer that deals directly with chipmakers, the parts would not have been available for 45 weeks.

“It’s all I need,” Hetnar said.

The strong swings in prices reflect the shortage of availability of the components and, even so, the amount of new business that is emerging for many intermediaries. Direct Components Inc., a Tampa, Florida-based chip broker, has tripled its customers in the past year, including many large buyers who hadn’t contacted before, said company founder Aaron Nursey.

“A year ago they didn’t really give us the time of day,” he said. “Now they come to us.”

Write to Stephanie Yang at [email protected]

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