Supply bottlenecks put strain on EMS, ODMs providers

With inventory out of line, iSuppli reports that EMS and ODM providers continue to face challenges in electronics supply chain management.

By Suzanne Deffree, Managing editor, news -- EDN, September 2, 2010

2009 may be long over, but the year's economic effect on component production and supply and demand is still being felt as the electronics supply chain struggles to manage inventory and product.  

Component shortages in the global electronics supply chain have major contract manufacturers facing a challenging supply imbalance fraught with tight inventory, a low level of finished goods, and a glut of raw materials, according to iSuppli Corp.

The market research company reported that inventory at five of the larger EMS (electronic manufacturing service) providers showed that components and raw materials accounted for nearly 70% of total inventories during Q1, the latest quarter for which data is available. Work-in-process goods made up 17% of inventories, while finished goods comprised less than 15%. Finished goods were at their lowest level since Q4 2008, iSuppli said, noting that the imbalance is likely to continue.

"iSuppli believes that the current trend-in which electronics inventories are being weighed down by an overwhelmingly large percentage of raw materials-will continue for some time to come, given that more product in kits are waiting to be finished," Thomas Dinges, iSuppli EMS and ODM analyst, said in a statement.

As supported by statements made on various earnings calls for the June quarter, semiconductor companies are citing extended lead times and parts shortages as a major problem.

According to iSuppli data, lead times have worsened for a wide range of semiconductor discrete devices, with lead times running as much as twice as long as the same period last year. At 10 weeks as of July, connectors showed the shortest lead time. However, that is up from five weeks in July 2009. The longest lead times reported were for rectifiers and small signal discretes, now running at 20 weeks compared to 10 weeks last year at this time, iSuppli said.

"Given that many suppliers were shuttered during the last years because of financial distress, the shortages have resulted in supply bottlenecks in industries," Dinges said. "Such shortages-in both parts and raw materials-will only add to the strain of EMS and ODM providers, even if they were to train their efforts at simply maintaining current levels of inventory velocity."