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Out of stock? How to Combat the Current Semiconductor Shortage

From a very young age growing up in Ethiopia, Deres Eshete’s interest in physics and mathematics led him to a successful career spanning from engineering to global business leadership. In a recent interview, we asked Deres – SI Electronics’ newest advisor and partner – about the road that led him to SI Electronics, as he shed light on the current semiconductor landscape and its global impact.

Experts saw a semiconductor shortage coming. Unfortunately, they underestimated the scale of it.

Deres, your rich experience of over a decade in the semiconductor industry makes you undeniably nothing less than an expert. What drove your decision to join SI Electronics?

Deres: My professional background stems from developing electronic solutions, predominantly in the automotive industry. I followed this up with several positions in the semiconductor manufacturing and leadership roles. During my career, I have witnessed significant growth in the semiconductor market, as it grew from around $300B in 2015 to currently hovering close to $500B and expecting to reach over $800B by the end of the decade for a compounded mid to high single-digit CAGR (compound annual growth rate). This growth is indicative of how semiconductors are now more than ever at the epicenter of every part of human life – from transportation to communication, industrialization, artificial intelligence, and medical solutions. SI Electronics has positioned itself at the right spot, which coincides with where the market is currently at, focusing on understanding the driving factors for the current state of shortage and carefully mapping out intelligent sourcing solutions. We understand that nowadays, electronic solutions need to meet elevated capabilities in this fast-paced digital world, especially when it comes to signal processing and power conversion. That is why, for me, partnering up with SI Electronics was the perfect fit and I am excited to act as a solution provider to our customers and the population at large. Together, we have the expertise and solid foundation to meet the current and future market demand beyond the shortage. The long-term issue we see is much less about the availability of innovative solutions, but rather the need to invest in ways to better plan and effectively manage demand signals, inventory, obsolescence, and manufacturing, while helping our customers develop sustainable growth strategies through intelligent sourcing.

Deres Eshete, SI Electronics
The semiconductor industry has been the backbone of technological progress. With that being said, we are now experiencing an out-of-control supply chain shortage. What contributed to this?

Deres: All of the sectors I mentioned earlier are experiencing significant growth in semiconductor usage. The transportation industry is increasingly moving towards hybrid and fully electric vehicles, on average doubling the semiconductor content compared to a traditional ICE (internal combustion engine) vehicle. Global connectivity is increasing exponentially with the introduction of faster and higher bandwidth technologies such as 5G driving more signal and power semiconductor contents. All of these major trends combined add up to a huge increase in demand for semiconductors and, with a sharp rise in demand, there is inevitably a shortage in supply. The supply shortage is further exacerbated by manufacturing facilities facing difficulties in keeping up with the staggering demand due to lead times in getting raw materials and processing equipment.

Even though there are ways of trying to keep up with the demand, there are also many limitations. For example, from a manufacturing standpoint, when it comes to signal processing applications, we can rely on the shift from 200mm to 300mm wafer size technologies as well as Moore’s law to influence the size, cost, density, and speed of a component. However, power applications, which is one of the fastest-growing sectors of semiconductors, do require larger and additional manufacturing facilities and Moore’s Law cannot help there. Therefore for power devices, we need to invest more into 300mm wafer technologies and build more FABs (fabrication plants) which are both very costly and cannot be constructed overnight. These are the major reasons semiconductor manufacturers find it almost impossible to keep up with the increased volume demand. In other words, the semiconductor shortage is driven by an accelerated increase in consumer demand and the semiconductor industries are taking the heat for it due to the significant amount of time it takes to ramp up a newly built FAB to full production.

"The semiconductor shortage is driven by an accelerated increase in consumer demand and the semiconductor industries are taking the heat for it due to the significant amount of time it takes to ramp up a newly built FAB to full production."

What is SI Electronics’ role in combating the shortage?

Deres: At SI Electronics, we strive to be a life-long partner to our clients. We begin the collaboration by firstly anticipating and identifying current challenges and areas of opportunity our clients face, and then we proactively work together by engaging in intelligent sourcing practices – meaning, we tackle inventory management and shortage solutions through global procurement and second sourcing. We take over a customer’s excess stock to reduce logistics costs and free up capital.

What is intelligent sourcing exactly?

Deres: Traditionally, when it comes to supply, there have been primarily two types of sourcing methods: direct providers or distributors. Direct providers are semiconductor manufacturers who only sell devices they manufacture, while distributors generally focus on smaller geographical regions or non-strategic customers who are otherwise not served directly by semiconductor manufacturers. An intelligent sourcing partner bridges the gap between these two types of sourcing partners and regions; and in our case, we have access to a global network that enables us to offer procurement strategies to avoid bringing our customers’ production to a halt. Not only do we utilize our global network of suppliers but we also have an internal team of engineers and technical staff analyzing second sourcing opportunities in-depth and ensuring the authenticity and safety of products that pass through our warehouses.

Around the time the pandemic started, most in the industry anticipated the semiconductor crisis was coming, but its magnitude still took many of us by surprise. We thought it would be manageable to some extent but we now recognize that investing in intelligent sourcing is one of the best ways to prevent this from happening in the future. Look at the automotive industry for example, which was the hardest hit sector. The volume of components used for one vehicle are hundreds, if not thousands of semiconductor devices. You can imagine the severity of supply chain disruptions from a single component resulting in the cessation of production for the entire vehicle. This is why we at SI Electronics work across different suppliers and various customers in different industries utilizing inventory management, manufacturing FABs coming live, and second sourcing databases as the key pillars of intelligent sourcing partnerships.

Do you foresee an end to this semiconductor shortage? What might our world look like post-crisis?

Deres: It is very difficult to predict an actual end date, and, in my opinion, the semiconductor shortage might never truly disappear but rather morph into a different, potentially less threatening beast – especially with the help of intelligent sourcing. With the knowledge we now have, we can direct our efforts to invest in smarter sourcing systems to better manage the supply and demand and prevent a similar crisis from happening again.

Intelligent sourcing will continue to remain relevant for years to come. We need to look at increasing our ecosystem of strategic partners to be able to provide the solutions at the right time. I am excited to see what the future will bring.


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