The current state of the supply chain is primed to drive a large number of older semiconductors into short supply, and the effects could be significant.
The current chip shortage has been making headlines for years, driven by the COVID-19 pandemic. But as this shortage gradually begins to ease, there’s another one looming on the horizon: the end-of-life chip shortage.
What is the End-of-Life Chip Shortage?
The end-of-life chip shortage has been driven over time by the electronics industry’s focus on new and emerging technologies. Manufacturers have been pouring their resources into developing new technologies with the unfortunate consequence that older, but still critical, components are in short supply.
The after-effects of the pandemic are contributing to the end-of-life chip shortage as well. Production capacity has declined due to the pandemic-induced global labor shortage, while demand has surged in the post-COVID economic rebound. This imbalance has forced chip manufacturers to prioritize their most lucrative production lines, usually their newest and most in-demand chips. They’ve slowed or even stopped production on older chips, and it may not be cost-effective to restart a production line for parts that are in lower demand. As a result, companies should prepare for a surge of end-of-life notifications.
As the economy rebounds and demand continues to rise, chip manufacturers are breaking ground on new factories. This will alleviate some of the pandemic-induced chip shortage—but it may worsen the end-of-life chip shortage. Getting a new factory up and running takes significant time and resources; it may not be worth going through this for older products that have less of a future. Production lines for older, less in-demand chips may not make the move, potentially sparking instant obsolescence.
Long-Term Effects of the End-of-Life Chip Shortage
The end-of-life chip shortage could have a negative effect because many chips may not have much of a phase-out period. With chip manufacturers forced to prioritize their newer products, it may not be cost-effective to restart a production line for a last-time buy on older parts.
Companies in need of end-of-life parts may not have the chance to protect themselves with a last-time buy. Even if they do, it may not be a cost-effective option. Between the upfront purchase cost and the cost of storing all those chips for years to come, a last-time buy isn’t cheap. Additionally, with electronics companies still trying to bounce back from the pandemic and a possible recession looming, a last-time buy may not be financially feasible. There’s also the risk that these parts may never be consumed, and their cost may never be recouped.
The end-of-life chip shortage will likely force companies to develop more proactive approaches to obsolescence in the future. Proactive purchasing and stocking up on inventory in advance have always been possible strategies, but companies too often take a reactive rather than proactive approach to obsolescence management. The end-of-life chip shortage will encourage them to refocus on their long-term shortage mitigation plans.
The end-of-life chip shortage will also draw attention to more efficient, sustainable design practices. Engineers can easily become disconnected from the supply chain and forget to consider sourcing when designing new products. They may get comfortable with existing components and continue to rely on them rather than investigating new alternatives, forgetting that legacy components are at the highest risk of obsolescence.
The end-of-life chip shortage will encourage design teams to stay in close communication with their supply chain counterparts. It will force engineers to adopt more sustainable design practices, factoring chip availability into their designs.
The Role of Government Intervention
With the CHIPS Act signed into law last year, the federal government has stepped in to attempt to ease the global chip shortage. A portion of CHIPS funding is earmarked for mature components considered essential to the military, automotive, and manufacturing sectors. This should help mitigate the impending end-of-life chip shortage.
But there’s no magic bullet when it comes to parts obsolescence. The electronics industry should not sit back and wait to see if and how the CHIPS Act helps the global supply chain. Instead, companies should continue to develop proactive obsolescence strategies and sustainable design practices. This will put them in the best possible position to weather the storm of the end-of-life chip shortage—as well as future shortages, which are inevitable.
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