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Electronics Industry Faces Labor Shortages as Chip Deficit Drags On

Sept. 24, 2021
Around 60% of electronics manufacturers and other industry players project the global chip shortage to last until at least the second half of 2022, according to the most recent survey by trade group IPC.

The global chip shortage has plagued the electronic industry for roughly a year at this point. But a majority of electronics manufacturers say they are now also struggling to hire workers to staff their factories, leading to longer delays in shipping products.

IPC, a leading electronics industry trade group, said around 80% of the companies that responded to its most recent survey are finding it “somewhat” or “extremely” difficult to hire highly qualified workers. More than two-thirds of the companies also said that, on top of rising component and materials costs, labor costs are also up.

IPC has more than 3,000 members that represent all facets of the global electronics industry, from contract manufacturers and OEMs to circuit board (PCB) makers and chip suppliers to assembly and test companies.

The lack of skilled labor is the latest crisis on the electronics industry's plate. A global chip shortage that has ravaged the automotive sector over the last year has started spreading to other industries, forcing electronics giants ranging from Apple and Sony to Dell Technologies and HP to fight over a limited supply of components. According to IPC, close to 60% of companies expect shortages to linger until at least the second half of 2022.

Only 5% of companies are open to the possibility the shortage will wrap up in the fourth quarter of 2021.

The chip sector is boosting its front-end and back-end production capacity by building or expanding fabs. But it can take several years for new factories to ramp up to mass production, leaving the industry with no short-term fixes. Most of the world's largest semiconductor firms are grappling with more demand than they have supplies. Executives at Intel and other industry giants warn the situation may not change before late 2022 or even 2023.

The crisis has been complicated by flare-ups of the coronavirus in Southeast Asia, which has become a major center for back-end chip testing and packaging. The outbreak has slowed production at factories in the region.

The companies surveyed said inventories, already depleted by a flood of demand for consumer electronics and other devices, are declining. According to IPC, more than half said backlogs are growing. Some 25% warned the inventory available to their customers will continue to decline, but 48% say inventories will remain unchanged.

The results come a month after TSMC, the world’s largest chip foundry, reportedly decided to hike prices by up to 10% for its most advanced production technology and up to 20% for legacy nodes as it faces unprecedented demand. The semiconductor industry is facing rising costs for everything from raw silicon wafers to substrates. Packaging, assembly, and testing costs are also up. The higher costs are rippling through global supply chains.

Many chip vendors say they are working with customers to pass on higher costs and preserve profit margins.

According to IPC, nine out of 10 electronics companies are paying higher prices to their suppliers for materials, including for items other than chips and related electronic components, as a result of the worsening shortages.

The shortage of skilled labor is also causing increased delays in shipping products, the survey said. About 88% of electronics makers and other players in the supply chain said their lead times—the amount of time between when an order is placed and when it is filled—are on the rise. Some 31% are seeing production delays stretch out to two months or even more, said IPC, which polled hundreds of companies globally as part of the survey.

The inability to hire and hold onto highly skilled workers is also pressuring profits, IPC said. Less than a quarter of companies said their profits are growing. Almost one-third reported that they expect margins to contract.

The trade group said the worst labor shortages are in the North America and Europe regions. As a result, IPC said companies across the electronics supply chain are starting to boost wages to fill the gaps, with some 44% saying they have done so. More than one-third of the companies surveyed said that they are offering more flexible hours or promising additional training and education to lure new workers and keep them from leaving.

“Supply shortages and other dislocations are impacting the global electronics supply chain and every downstream industry these manufacturers serve,” said Shawn DuBravac, the chief economist at IPC and lead researcher on the report, in a statement. “Strong demand is helping industry sales, but shortages are delaying shipments and increasing backlogs. Manufacturers are facing higher prices as they compete for limited supply."

This situation "is going to take well into next year to resolve."

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