Freelance journalist

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Ron Alalouff is a journalist specialising in the fire and security markets, and a former editor of websites and magazines in the same fields.
November 10, 2021

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The Video Surveillance Report 2021

Chipset shortage

The global microchip shortage: How is it impacting the fire and security industry?

The global computer microchip shortage first hit the headlines with reports of lengthening waiting times for new car deliveries. As large parts of the world emerged from pandemic-induced lockdowns and customers were able to get back into showrooms, buyers were finding that waiting times had increased, sometimes by up to 12 months. Ron Alalouff reports on the impact the issue is having on the fire and security industry.

The current shortage is in large part a consequence of the outbreak of the pandemic, when chip manufacturers were forced to cut production or even shut down facilities due to staff shortages caused by employees having to isolate. This was exacerbated by the cancellation of orders by their customers, who were hit by short term drops in demand for their products. What chip manufacturers did not expect was a swift rebound in demand, partly due to people being at home more, and later to a surge in pent-up demand when lockdown restrictions eased.

“In its latest Market Conditions Review, an annual snapshot of the fire protection market, the FIA reports that around 55% of respondents said suppliers’ delivery times had generally increased over the past year, while 76% have reported price increases.”

Chipset-Shortage-21

The reasons behind the shortage are myriad, as Michael Yang, Senior Director Research – Semiconductors, Omdia, explains: “The semiconductor shortage has persisted due to several reasons, including rising demand in the automotive segment and 5G implementations; disruptions in the supply chain due to COVID-19 impacting manufacturing and logistics; a geopolitical environment where national security and supply chain independence are being prioritized; natural disasters like the snow storm and power outage in Texas, and the water shortages in Taiwan; and raw material shortages, as well as fundamental capacity constraints due to sustained lack of investments in 8” capacity.

“As we enter the second year of the semi shortage, we do anticipate the overall environment will improve, with manufacturers prioritising key components, long-term commitments to capacity expansion, both in 8” and 12” fabs, and normalization of demand.”

Modern electronic fire safety and security products – just like almost all electronic devices made today – utilise integrated circuits or microchips, so how is the global shortage of microchips affecting the industry?

In a statement last month, the British Security Industry Association (BSIA) said that in conjunction with the Fire Industry Association (FIA), it was developing relationships with other affected industry bodies to learn more about the shortages affecting electronic components. It found that the shortage was not only due to the components themselves, but a combination from the fallout from Brexit, the shortage of haulage drivers and recovery from the pandemic.

BSIA members reported that:

  • Components continue to be in short supply with lead times of up to a year
  • Allocations continue to restrict supply
  • Some component manufacturers insist on non-cancellable orders with excessive lead times
  • Sourcing parts outside the usual distributor network resulted in some components costing 10 to 20 times the usual price
  • Additional shipping delays are adding an extra 10 to 15 days and this figure is increasing.

But in a swipe at government, the BSIA says its requests to the Security Minister have resulted in “a less than satisfactory response”, suggesting that the issue is being passed around various government departments. “We continue to use our wide government reach to leverage a positive response to this developing situation, and we wish to reassure our members that we continue to explore all avenues to seek, where possible, to guarantee the component supply chain for critical safety and security systems.”

In its latest Market Conditions Review, an annual snapshot of the fire protection market, the FIA reports that around 55% of respondents said suppliers’ delivery times had generally increased over the past year, while 76% have reported price increases.

Impact on manufacturing

As for the manufacturers themselves, only two of those contacted were willing to go on the record to discuss component shortages. Neil Boyce, SVP of Operations for 360o camera specialist Oncam, said that shortages of electronic parts are a daily occurrence and everyone is affected by it, with lead times from semiconductor companies increasing from 300 days to 620 days.

Where production capacity was limited, semiconductor manufacturers were focussing on more profitable premium components, leading to shortages of many lower cost parts. He said, however, that Oncam had only experienced minor delays – thanks to its relationships with manufacturing partners and its approach to sourcing alternative parts to plug supply gaps – but production schedules in 2022 could be affected.

Boyce said additional costs are currently being absorbed throughout the supply chain. “We have not raised prices so far as we are waiting to see if the market stabilises. I have seen component prices increase 60 times in the spot buy market. I have also seen increases in freight costs up to 15 times, so we will continue to watch the market, but for now we are holding our position.”

He expects the situation to improve in the longer term. “I don’t believe there is demand for the production orders that are in place today, so I see cancellations down the line. I also see capacity increasing as foundries come online in the US.”

Clym Brown, Marketing Director at Texecom, agrees that his company has experienced long lead times and shortages of many different types of semiconductor components during the past 12 months. But because Texecom designs and produces its own product range in its own facilities, he says it has greater control over its manufacturing and strong partnerships with its component suppliers.

“Many shortages have been mitigated through our ability to provide long-term forecasting on our component supply needs,” he said. “Having technical authority over our product range has also meant that we have been able to deploy our engineering team to source alternative components, where issues with supply have arisen. Additionally, we have very good relationships with our security distribution partners, who regularly manage stock profiles to keep up with market demand. That said, we have seen spot shortages on select product lines, and have increased our lead-time into our distribution partners as we manage the disruption.”

Texecom had experienced spot price increases on certain semiconductor components, said Brown, which is impacting costs on selected product lines, but so far it has largely managed to absorb those costs, except for “minimal price increases”.

As to the outlook for sourcing semiconductor components, Brown added: “It is a complex and fluid situation. We are not seeing any indications of any improvement at this time, but we are monitoring the situation closely.”

IFSEC Global will be further exploring the impact of the shortages, on the video surveillance industry specifically, in our upcoming Video Surveillance Report 2021, due out later this month.

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