Shortages Now Hit ODM and EMS Companies

Lead times are running as much as 100% longer than for the same period last year, according to iSuppli. The longest lead times are for rectifiers and small signal discretes, now running at 20 weeks compared to 10 weeks this time last year.

In July, Nissan closed down six car factories because of a shortage of chips from STMicroelectronics; in August Ericsson said it had lost $400m through shortages and the CEOs of Alcatel-Lucent and Cisco complained of short supply; while the smartphone manufacturers have also complained about constrained supplies.

"Given that many suppliers were shuttered during the last years because of financial distress, the shortages have resulted in supply bottlenecks in industries," says Dinges, "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."

Components and raw materials accounted for nearly 70% of total inventories at EMS companies during Q1 2010, while work-in-process goods made up about 17% of inventories, and finished goods comprised less than 15%

Finished goods were at their lowest level since Q408.

The industry supply chain does not believe the situation is likely to improve until later in the year - even if demand softens in the near term, according to Dinges.