Component Shortages

Variosystems already informed during the 4^th quarter of 2020 that the semiconductor market was coming under significant pressure, in relation to both price stability and delivery schedules. This trend increased once again at the beginning of 2021 and we drew the attention of our customers to this situation back in January 2021. The customer advisors of Variosystems, together with our purchasing department and you, have supported the measures that have been implemented to continue and ensure timely production as well as delivery.

The procurement of electronic components remains extremely tense and has become even more so recently. The electronics sector is constantly battling with component shortages all along the supply chain and there is no easing in sight. Depending on the component, the delivery times are extending to > 52 weeks with increasing allocation. There are several reasons for this situation. On the one hand, it has to do with the home office effect, which has caused a boom in mobile devices such as tablets, smartphones, screens and servers, as well as cloud infrastructures and wearables. On the other hand, it is 5G technology as well as the transition in the automobile sector towards electric mobility. All these circumstances, along with the strong market recovery, are ensuring that the volume of required electronics components continues to grow significantly.

Critical situation

The following factors show how serious the situation is. The big global players – Apple, Samsung and Huawei – need more than 50% of the whole worldwide semiconductor production. Owing to the raw materials shortage, the manufacturers are currently producing with strongly reduced capacities. It is expected that these shortages will lead to price increases of 20 to 40%. TSMC, the largest semiconductor manufacturer worldwide, which supplies Intel amongst others, is investing 80 billion US dollars in new production sites in forthcoming years. Due to the lack of raw materials, the completion of the new plants will take longer, which exacerbates the effect of the ongoing shortages further.

These alarming facts are forcing us as Variosystems, together with our customers and longstanding partnerships, to take immediate action. With our global purchasing team of over 80 employees, we are continuing to cooperate intensively with distributors and manufacturers worldwide, where necessary with brokers, to secure all the possibilities for procuring critical components.

This situation is now forcing us to once again revise with you, valued customers, your required quantities and to reassess the future. We would therefore like to make the following urgent recommendations:

• A review of the customer forecasts for the years 2022 and 2023 in relation to the quarters. This gives us a clearer picture of the future assignments and supports us in placing orders. We then place complete orders with fixed schedules.
• To coordinate together with us the overlap between the existing orders and/or framework contracts and if necessary to agree new contracts to cover the horizon 2022 plus 2023.
• Placing of fixed material or framework orders until at least 2023.
• To place ongoing, rolling orders to firmly cover a period of at least 12-18 months.

These activities should take place urgently in October in consultation with Variosystems for the required measures. For the future, we continue to value long-term partnership, as well as intensive cooperation with you. Such challenges can only be solved through cooperative dialogue. The delivery capacity of our customers is the highest priority for Variosystems and we will exploit all possibilities and apply flexibility to maintain it.

It must also be noted that delivery preferences are extremely difficult to handle and realize in the current situation. Due to the unpredictable and unforeseeable effects such as allocations in the supply chain, we must also point out a possible “force majeure”. Currently, around 30% of all orders are no longer confirmed in terms of schedule and price. In these circumstances, it is therefore not possible for us to confirm binding schedules and prices anymore.

We trust in your help and support and would like to thank you cordially for your understanding in this special situation.

Our teams are available for any questions and solutions.