Broadcast equipment vendors need customers to adapt their buying cycles as semiconductor shortages bite, writes Adrian Pennington.
The disruption caused by Covid-19 to the global supply chain is now affecting the manufacture and shipping of broadcast kit, and the impact is widespread and worsening.
All 130 companies responding to a recent IABM survey reported experiencing some level of problems in obtaining components, with 40% of those calling the situation “severe”.
“It’s a perfect storm,” says Lorenzo Zanni, Head of Knowledge at IABM. “The industry is still trying to wrap its head around the implications.”
Lead times have gone from a typical 12-16 weeks to 52 weeks. Manufacturers are investing in component inventory to ensure their customers continue to receive product, but this is a short-term fix.
“Even viewing over a full year there are predicated gaps in our supply and we have to work aggressively with the supply chain to close those gaps before they get to us,” says Bill Pulcine VP, Supply Chain Management at Ross Video.
“It is imperative that customers understand today’s realities. If they want to ensure their project runs on time they need to give us longer lead times as well.”
Vendors always build to a forecast and if sales greatly exceed that forecast then the same issue would occur, but the global shortage of semiconductors has exacerbated this.
That’s a message that the IABM and its members, including Imagine Communications and Grass Valley, are keen to communicate.
“Collectively, vendors need a dialogue with their customers in terms of lead time,” Neil Maycock, CMO and General Manager Playout for Grass Valley, says. “The buying cycle needs to adapt.”
He explains: “We’re seeing a major impact in component delivery. We normally give our suppliers a schedule based on a forecast every few months which we typically adjust based on demand. Now we’re being asked to commit to a 12-month period which we can’t change.”
These are binding contracts which are stressing the ‘just in time’ nature of modern manufacture.
“It might be that just in time production is not ideal for these times,” Zanni says. “We need to give more weight to the resilience of the supply chain to better respond to events in future.”
Most broadcast customers are understanding of the issue but face their own pressures to meet deadlines.
“It is imperative that customers understand today’s realities. If they want to ensure their project runs on time they need to give us longer lead times as well,” Bill Pulcine, Ross Video
“There have always been tensions between project schedules and purchase orders,” says Pulcine. “A manufacturer typically won’t earmark production until they get an order from the customer, while the customer may not sign that order until they receive a guaranteed delivery date. That tension is exacerbated significantly in the current climate.”
Source of the problem
The pandemic has disrupted global supply chains since February 2020, shutting factories and transport routes. At the same time demand for computing equipment such as PCs has shot up with the move to remote working and cloud computing. Shelter at home orders have also seen high demand for TVs putting further pressure on core chipsets, while 5G network deployments and rising interest in electric cars have resulted in spiked demand for integrated circuits. Cryptocurrencies are adding to demand for storage devices used in mining.
Factor in geopolitical issues such as US government sanctions on Huawei and ZTE (blocking access to chips built with US technology and in turn prompting Chinese firms to stockpile chips), and incidents like the Suez Canal grounding, a fire that knocked out a Japanese plant in March and a winter freeze that offlined chip makers Samsung and NXP in Texas and you have a recipe for disaster.
“If Covid-19 has shown us anything, it’s that supply chains are volatile and interconnected,” says Zanni. “It not just related to supply from Asia Pacific; this is an international problem.”
Much of the focus is on the lack of semiconductors but the IABM survey highlights that batteries, motherboards, resistors, capacitors and amplifiers are also in short supply.
“If Covid-19 has shown us anything, it’s that supply chains are volatile and interconnected. This is an international problem,” Lorenzo Zanni, IABM
Even cloud service providers rely on data centres to power services, so while a broadcaster’s move to cloud offloads the immediate burden of sourcing parts the bottleneck is just pushed elsewhere.
Ramifications for development
The norm for ordering parts for a new product is four months. That’s because if a manufacturer wants to launch a new product it takes that long to build up to volume production. With the lead period pushed to a year, few companies are able to accurately predict the market for their product so far out.
“The flow of information from suppliers has also slowed to a crawl,” Pulcine says. “Typically, when we place an order it would be confirmed — not just acknowledged — with a date and price in two days. Now we see orders sitting in limbo with no real commitment on delivery for as long as a month.”
There are workarounds to satisfy demand. One is to loan the customer an older version of a product until the newer one is available. Another is to substitute the missing part for an equivalent one perhaps sourced from another company. Some paperwork and data review may be needed to qualify the part for use, however, so this can realistically only be done for simple components.
A more severe part substitution would require building and testing a prototype. In the most extreme cases necessitating a complete re-layout of a circuit board, the redesign effort is considerable. It could take 6-8 months to rework the product using a different FPGA – an effort that also takes resources away from R&D on the next of generation of product. That’s not a route vendors can afford to go down.
When Covid-19 began, Ross Video took an aggressive stance on securing components. Starting with parts that originated in China, it secured inventory to ensure its product supply to customers would remain unaffected. As the virus spread overseas the company cast a wider net to include all commercial parts.
“This gave us some safety but it was still a significant investment,” says Pulcine. “When lead times went out to a year we expanded that bucket again to help navigate the problem – another significant investment.
“So far, we are continuing to ship at normal volumes but there are select items where our lead time has been seriously affected. That has expanded our lead times on limited product offerings from two weeks to two months.”
Fabless companies, those that don’t manufacture the silicon wafers, or chips, used in its products, are generally held not to have as much control over the situation as those who own their own fabs. Imagine Communications, though, subcontracts the manufacture of its product and says because of this the impact on it has not been severe.
“Our partner manufacturers have good relationships with all the semiconductor companies and were able to get ahead of most of those shortages by planning ahead and forecasting further out,” says Chris Sjerven, VP of Manufacture and Supply Chain, Imagine Communications. “We’re asking our customers for that extended visibility also.”
Imagine’s forecasts have also gone from six months to a year and it is stocking inventory. “Our policy is always to have a safety lead time built into our system so that shocks like this don’t shut us down.
“In many cases customers with new installs, like setting up a sports arena, come to us already with lead times over a year-plus, so the just in time nature of manufacture is not impacted. It is the drop-in orders which are harder to accommodate.”
Price inflation horizon
The IABM reports no increase to end users in terms of the price of broadcast tech, but says suppliers may soon have no choice.
“Shortages mean the price of raw component goes up with demand and that impacts the bottom line. Suppliers then have either to absorb the cost, extend lead times or raise prices.”
Reports suggest that some component makers are marking up product by 5-10%. When thousands of parts go into making broadcast machines (Ross Video buys around 8000 parts for its portfolio) that can add up.
“Electronics is a deflationary industry - generally you are reducing cost over time,” says Pulcine. “So far, we’ve been able to offset those increases. It means our cost reduction has flattened out but there’s been no need to pass any of that on.”
“We’ve seen price inflation in almost all components not just semiconductors, but we aren’t passing that onto customers in the near term,” says Sjerven. “We are monitoring the situation and if it continues beyond a year we’ll see.”
Inflation is already happening to the retail of consumer electronics, with some high-end televisions already costing 30% more than they did last summer, according to market researcher NPD.
“Anything that has a screen built into it is going to be affected by these price increases,” Paul Gagnon, senior research director for consumer devices at Omdia told Wired.
Lenovo, Dell and Asus have flagged that a shortage of components would mean price hikes further upstream. Last month Sony told analysts that the PlayStation 5 would remain in short supply through 2022 due to the crunch. Console rivals Microsoft and Nintendo have also warned that component shortages could affect production.
Apple confirmed that chip shortages will see it delay rollout of new iPad and Mac products and lose $3 to $4 billion in revenue in Q3 2021 as a result.
To mitigate the effects of the shortages, 40% of broadcast kit vendors are finding alternative suppliers and spreading orders across several, according to IABM. Some 31% are advance ordering large stocks and/or paying more; 19% are managing customer expectations and 10% are just waiting for things to improve.
Frenzied grey market
Interconnected is one way to describe supply chain complexity. Another is “very tangled, even byzantine”, says Pulcine.
Most of the large chip manufacturers only sell direct to the very largest CE giants (like Samsung), and rarely to companies the size of those selling kit into the niche broadcast industry. Instead, chip fabricators sell to distributors which is where most IABM members source parts. There is also a thriving grey market of brokers or independent distributors used sparingly by vendors.
“The grey market is in a frenzy,” says Pulcine. “There are some good distributors but it’s also home to some shady suppliers who don’t necessarily have good quality processors and where counterfeit goods can get into market. We tend to avoid it as much as possible.”
Imagine is also wary. “We use brokers on occasion and will use them more and more as this stress on the supply chain continues,” says Sjerven. “They can be very valuable but you always have to be careful of counterfeits. Anything we source goes through all the safety and quality checks to make sure it’s a good quality component.”
As an alternative, the IABM has launched an online marketplace for members to pool and access parts. The BaM Stock Exchange enables companies to list their excess stock on the IABM website using internationally accepted parts codes and descriptions.
“Since many components are common across broadcast and media tech suppliers, it makes compelling sense to use the industry’s independent, international organisation as an ‘Exchange’,” says Peter White, IABM CEO, who credits Grass Valley CEO Tim Shoulders with the inspiration.
“As a relatively niche industry compared with, for example, the automotive industry giants, we don’t have equal clout with component suppliers. However, most companies do hold their own stocks of components – some of which they no longer use.”
In the longer term
Ramping up production or relocating fabrication plants closer to home is one long-term solution. US semiconductor firms have been lobbying the US government for years to subsidise domestic chip manufacture having seen its share of capacity erode from 37% in 1990 to 12% today.
In May, electronics manufacturing association IPC urged the US government to address “a fundamental mistake” they say had characterised US tech policy for decades: the idea that the United States can be a technology leader by designing electronic products that cannot be domestically manufactured.
It argued that the state should increase its support of semiconductor manufacturing but also of the entire electronics ecosystem for the country to remain globally competitive.
The Biden administration has since pledged $50 billion to boost semiconductor production but it’s only a start, according to Intel CEO Pat Gelsinger.
“We would say it helps… it’s not enough for the vision I am suggesting,” Gelsinger told Yahoo Finance. “It’s something that is so important to every aspect of humanity, everything is becoming more digital and all that manufacturing for that is being done elsewhere. We’ve seen the supply disruptions through Covid. We need to stop the decline and start the rise.”
For its part, Intel announced in March plans to invest $20 billion to build two new factories in the US, and Taiwanese chip maker TSMC announced a $100 billion spend on facilities in China and Arizona – mainly for automotive.
As broadcast equipment is in the process of transitioning over to software then products should be less affected by hardware shortages – but not entirely.
Software runs on PCs, on storage and servers, and on servers in data centres - all of which rely ultimately on limited supplies of raw silicon.