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Electronic Components

Communications including 5G will drive the components market

Communications including 5G will drive the components market

According to IC Insights, the communication sector’s share of integrated circuit sales reached 35% in 2020 and is expected to grow to 36.5% by 2025. For perspective, the automotive sector’s share of integrated circuit sales was 7.5% in 2020 and will grow to 9.8% by 2025 – significantly less than communications.

Industry tailwinds

What’s driving such high demand for ICs in the communications sector?

There are four big tailwinds:

  • 5G
  • Edge computing
  • Internet of Things
  • AI (artificial intelligence), MI (machine learning) and data analytics

5G

5G is the main driver for components demand, with 5G infrastructure rollout happening slowly, but surely. We are nowhere near a complete version of 5G, and networks are in a race against time to deliver a reliable service.

The first step for networks is replacing low-band 4G spectrum, followed by mid-band spectrum that uses 2.5, 3.5 and 4.5 GHz, enabling faster data speeds. The final step is the rollout of millimetre wave, which enables true 5G speeds. Millimetre wave also happens to be a precursor for next-generation 6G.

On top of 5G infrastructure rollout you have more 5G-enabled devices coming to market, such as smartphones, tablets and laptops. Smartphones, in particular, are leading the way for 5G adoption, putting faster data in our hands.

The rapid growth in IC demand in the communications sector also stretches to other components like modems, memory and antennas. 5G isn’t just an IC boon – it’s a boon for all the electronic components needed for 5G. 

Edge computing

Second to 5G we have edge computing, which by a miraculous twist of fate is needed to deliver a 5G experience (and needs a whole lot of components).

Edge computing puts compute capabilities relatively close to end users and/or IoT endpoints. In doing so, it reduces latency, while 5G delivers faster data speeds, providing a seamless experience on certain devices.

Internet of Things

IoT describes a network of connected smart devices that communicate with each other. For example, a vital sign monitor in a hospital could communicate with medicine dispensers and automate medicine dosages for doctors.

The Internet of Things has been talked about as a trend for several years, but we now have real applications that are useful.

AI (artificial intelligence), MI (machine learning) and data analytics

AI (artificial intelligence), MI (machine learning) and data analytics require enormous, powerful data centres to power them. These data centres require significant investment in chips, memory and other electronic components.

Also, AI, MI and data analytics need cloud computing, edge computing and in some cases 5G to deliver a real-time experience.

The future

By 2025, the communications sector is forecast to have a 36.5% usage share of integrated circuits, making it the biggest consumer of semiconductors.

Demand for integrated circuits, discrete circuits, optoelectronics and sensors will grow to an all-time highs thanks to the industry tailwinds in this article. The future is bright, but to stay ahead, a robust supply chain will be needed.

Electronic components distributors like Cyclops are helping supply meet demand, while the communications sector battles to secure chip orders. Call us today at +44 (0) 01904 415 415 or email sales@cyclops-electronics.com 

Categories
Electronic Components

Causes of IC Shortage

Categories
Electronic Components

Component Prices Rise 10% to 40% – But why?

While component price rises are expected when demand outstrips supply, the scale of recent increases has come as a shock to many businesses.

In its Q3 Commodity Intelligence Quarterly, CMarket intelligence platform Supplyframe reports that some electronic components have seen prices rise by as much as 40%, making it uneconomical for products to be made.  

In particular, semiconductors, memory, and modems are seeing 10 to 40% price increases, exceeding what most analysts envisioned for 2021.

Why are prices rising?

Price rises start with materials. There are long lead times for many raw materials, causing shortages. Add rising commodity prices and difficulties transporting products and you have a disrupted manufacturing economy.

You also have to factor in the impact of the coronavirus pandemic, which has caused labour shortages and disrupted the manufacturing economy with shutdowns.

Logistics is also a big fly in the ointment for electronic components. The industry is recovering from COVID-induced shutdowns and travel restrictions are causing problems at borders, creating delays that ripple through the supply chain.

Supply and demand

The bulletproof economics of supply and demand also rule the roost for electronic components, and demand is higher than it has ever been.

We are in a situation today where most electronic components manufacturers are running at 99-100% capacity and can’t keep up with demand.

Demand is outstripping supply for chips, memory and communications components like integrated circuits, discrete circuits, optoelectronics and sensors, creating a bidding war as manufacturers scramble to get what they need.

Growing demand for new technologies

Emerging technologies like artificial intelligence, machine learning, virtual reality, augmented reality and edge computing are fuelling demand for smarter chips and data centre modernisation, while technologies like 5G and Wi-Fi 6 are demanding infrastructure rollout, which requires significant investment.

Across the board, technology is booming. Manufacturers are making more products for more people, and they must do so while balancing costs at a time when component prices are rising – no easy feat even for established businesses. 

Pressure relief

Everyone is raising prices in line with their own cost increases, from semiconductor manufacturers to outsourced fabs and suppliers. At 10 to 40%, these increases are putting pressure on supply chains and businesses.

How many price increases will target markets absorb? How can we sustain production without significant margin pressure? These are the challenges facing manufacturers, who are stuck between a rock and a hard place right now.

There are a few solutions:

  • Equivalents: Source equivalent components from different brands/makers/OEMs that meet size, power, specification, and design standards.
  • Use an electronic components distributor: Distributors are the best-connected players in the industry, able to source hard-to-procure and shortage components thanks to relationships with critical decision-makers.

Prices will fizzle down, eventually

Although research published by Supplyframe says pricing challenges will remain through early 2023, they won’t last forever. Price rises should fizzle out towards the end of 2021 as manufacturers catch up to orders and reduce disruption.

If you are experiencing an electronic component shortage, we can help. Email us if you have any questions or call us on 01904 415 415 for a chat with our team.