Chip delivery time shrank by four days, the most in years

• Compared with nearly 27 weeks the previous month, lead times in September averaged 26.3 weeks, a sign that supply chain glut is easing.
• Wait times contracted for all key product categories, with power-management and analog chips seeing the biggest declines, a research report shows.

Supply chain glut and shortage in chips are no longer the big dilemma within the semiconductor industry — the continued mismatch between demand and supply of chips is. Because of that, lead times — the gaps between when a chip is ordered and when it is delivered — are getting longer. As of summer 2022, lead times for most semiconductors — no matter the type — are running at least 40 to 50 weeks, with many in the 50 to 60-week range. 

Until last month, no waits were shorter than 30 weeks, with most being far longer than 70 weeks. However, in September this year, according to research by Susquehanna Financial Group, wait times contracted for all key chip product categories, with power-management and analog chips seeing the biggest declines.

Overall, chip delivery times shrank by four days last month, the biggest drop in years. Lead times averaged 26.3 weeks in the period, compared with nearly 27 weeks the previous month. Although pockets of supply constraints remain, now many chipmakers are concerned about the opposite problem to a year ago: chip inventory getting too high. 

The supply chain scenario

When it comes to the semiconductor industry’s supply chain, the recent weakening demand for PCs due to prolonged periods of delays and cancellations is an added pressure on global chip demand. Now, even high interest rates and input costs are making the chip-making process all the more difficult, a trend that is expected to continue for some time. 

On top of which, as lead times have increased, so has pricing. Raw materials, foundries, test and assembly, logistics and labor have all become more expensive than ever. In turn, semiconductor suppliers are being forced to pass their costs on to their customers to help stabilize the supply chain. For instance, TSMC — the world’s largest foundry supplier of 300mm wafers and the most advanced process nodes — has announced it will raise chip prices by 6% in January 2023 after a 10% increase for high-end semiconductors and by 20% for less advanced chips in August 2021.

Across the board, chip suppliers have raised prices between 10% and 20%, on average, in response to supply constraints, increased shortages, the rising costs of raw materials, and inflation throughout the second half of 2022. Like shortages, price increases are expected to continue into 2023. Such scenarios are only exacerbating the weakening global chip demand, with various industry players recording lower sales in recent quarters. 

For instance, AMD’s third-quarter sales missed projections by more than US$1 billion earlier this month, and Intel is poised to cut jobs to cope with the slump in demand. Even South Korean chip giant Samsung Electronics was impacted by the fading demand as it flagged its first profit fall in nearly three years. 

In a sign of the deepening industry downturn, the world’s largest memory chipmaker and smartphone producer earlier this month estimated its operating profit for the three months to the end of September at Won10.8 trillion (US$7.7 billion), down 32% from a year earlier.  The weaker-than-expected profit guidance comes after US chipmaker Micron Technologies and Japan’s Kioxia Holdings cut spending to counter a supply glut.