Broadcast Bridge
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Global supply chain issues continue to strangle the broadcast manufacturing
industry with the issue likely to get worse before it stabilizes. An alarming
86% of broadcast industry suppliers categorise the impact as moderate or severe
on their financial sustainability if conditions persist for another year.
That’s according to a new IABM poll of members which found
63% of respondents reporting severe issues in February 2022, up from 40% in
April 2021.
The ‘Supply Chain Disruption Poll’, a follow up to its
survey of April 2021, found that virtually all companies (97%) say they are
experiencing moderate or severe issues, up from 85% last April.
Lead times have been most affected by the disruption and
component cost has risen by 44% with some of this resulting in price inflation
for end product.
With no early prospect of the component shortage problem being
resolved, many media tech companies have responded by redesigning their
products to mitigate issues with sourcing specific components, and/or
stockpiling components where possible to keep their production lines flowing in
the face of dramatically increased lead times.
Most businesses relied on stockpiling or redesigning
products for mitigating issues with sourcing components. Public media tech
suppliers such as Harmonic and Evertz have commented on
increasing their stockpiling during their earnings calls. Harmonic's inventory
grew to $71.2m in Q4 2021 - last time the value of inventory was so high it was
in 2011 when tech supplies had been hit by a tsunami in Japan.
The first signs of shortage emerged in the fall of 2020 and
became critical in spring of 2021. The core issue is related to production
capacity in factories (particularly in China, but elsewhere too) which were
shut down for extended periods at the height of the pandemic and are now
struggling to fulfil backlog orders, while continuing to operate within full or
partial lockdowns.
Factor in global disruption to freight and logistics
industries affecting everything from operation of mega-ports around the world,
container ships at sea (and stuck in the Suez canal…) to local delivery drivers
(blockading cities) and you have the perfect storm.
Compared to automotive, IT or consumer electronics or dozens
of other industries, broadcast is a very small market, yet relies extensively
on high-performance hardware processors and microchips.
“As an industry we are competing with huge consumer
industries for capacity in these areas so is at a significant disadvantage when
it comes to prioritizing production capacity as it begins to come back on
line,” one broadcast tech vendor says (under condition of anonymity.
“Therefore, I think broadcast will be slower to recover than, say automotive or
handheld electronics.”
There is a particular shortage of specialised components:
ASICs, FPGAs and Power-Supply ICs.
Even companies whose product’s value lies in software have
been hit. Lina Zackrisson, CEO, Intinor says, “Our hardware products
exist to provide the power we need to support the software. In that context,
the global chip shortage has had a small impact on our prices, but we are
seeing shortages on vital components and this is a continuing concern for us.”
The issue is affecting the majority of vendors yet few
companies are prepared to speak publically.
In a statement, Sony said: “Situations such as the
global semiconductor supply shortage are intermittently impacting the
procurement of components and production plans for many of our major products.
We continue to work with our partner companies to take all applicable measures
to minimise the impact to our business and customers. While we see an increase
in logistic costs, we will also work on minimizing this impact through flexible
operations and enhanced logistical efficiencies.”
I contacted many more big brand vendors for this article
with some notable hardware-based product vendors declining to talk on grounds
of market sensitivity.
We commend those who have shared thoughts on a subject that
surely impacts the entire sector.
Background To Problem
To understand how the components shortage affect production
of any electronic device, it is worth noting that the manufacturers of
mass-produced devices prefer to use specialised microchips called ASICs
(application-specific integrated circuits). They are customized for a particular
functionality that the manufacturer wants to implement in the product and helps
them to significantly reduce the total number of electronic components and the
development time. As a rule, in addition to the development of electronic
circuit and printed circuit board (PCB), the use of ASICs requires the
development or customisation of software. The entire product design is made
around the ASIC.
“When ASICs are not available a manufacturer is unable to
produce its product as originally developed,” says Igor Vitiorets, CTO
at slomo.tv. “There is practically nothing to replace the ASIC with.
If the manufacturer is going to replace it with some other component, they are
forced to change the design, and therefore the electronic circuitry and the
PCB. Sometimes the mechanical design needs to be changed. The software always
needs to be redeveloped. In fact, the manufacturer is forced to create a new
device (adding the testing cycle and production management). The costs (and
losses) are very high. It turns out that most of the components, at least the
key ones, cannot be replaced.”
It all means that manufacturers simply cannot produce the
number of products originally planned, based on market demand, not to mention
production for stock. They have no guarantee of being able to obtain ordered
components in full within the agreed terms, and it extremely problematic to buy
any extra.
“Supply chain issues have resulted in significantly longer
delivery times and some products are no longer available,” says Vitiorets. “We
had to change the delivery period for our products from 45 days to 60 days or
more. Some manufacturers cannot guarantee a delivery date at all.”
Vendors are taking mitigating action. This includes
increasing the inventory of components (which in turn increases the production
cost of the systems), forecasting and planning.
“Systems like ours are high-value, low-volume, and
hand-made, so we have always been skilled in keeping enough stocks and
assembled systems to be able to supply customers in a reasonable time frame,”
says one tech vendor. “This enabled us to keep up with demand through the
pandemic, and avoid passing on the delivery schedule extensions to our customers.
This will become increasingly difficult as demand increases with no reduction
in supply chain pressure.”
Is Inflation Inevitable?
In short, yes. Prices are increasing on every sub-system and
component without exception as far as one vendor can tell. The rises range from
a modest 2-5% to some “near-extortion” levels like 300 – 500%, it reports.
Moreover, it’s impossible to know if suppliers/distributers
have genuine supply issues or are exploiting the situation and profiteering
from it.
“Like panic buying fuel or toilet rolls, it becomes
irrelevant whether there really is a shortage of supply or not,” says the
vendor. “If there is a perceived shortage then demand increases rapidly
outstripping even normal supply levels, leading to steep price increases.”
Vitiorets makes a similar point explaining that the
situation has automatically led to price increases, because manufacturers are
tempted to compensate for the shortfall in profits by raising the prices of
their products. While those who desperately need these products now, will buy
them at a high price, on the other hand, for many companies, higher prices may
be the only way to survive.
While Zackrisson says Intinor only sources components from
“premium suppliers” able to deliver the highest performance “that means we do
face the most price volatility. I am certain I am not the only CEO in the
industry contemplating price rises in the future.”
Broadcasters themselves are under their own pressures, as
the consumer cost of living rises, and are pushing manufacturers for ever
better and better deals. This is clearly not sustainable in the medium or long
term with further price hikes likely.
Grey Market
Vendors could resort to the grey market of brokers and
independent distributors to source items. This is risky since kit traded in
this way is not easily traceable for buyers to hold supply of faulty goods to
account. Nor is it cheap - for some components, prices have increased many
times over the dealer's list price. But it is being used so that end customer
orders can be fulfilled.
“More concerning is the black market,” reports another
vendor. “We often come across suppliers of microprocessors offering popular
devices ‘direct from manufacturers’ at prices more than 10x normal. The
financial impact on system manufacturers of not having a $50 component (even
when it should be $5) no doubt makes it tempting to pay the price. We have
always refused to follow this path, but I can see how companies would fall
victim to that.”
How Long Will The Crunch Last?
The million dollar question for which no-one has the answer.
“We cannot see at this stage how long the supply chain problems will continue,
so we have to be prepared to weather it out,” says Zackrisson.
As the pandemic unwinds across the globe, the bottlenecks
should ease – although potential conflict in Europe or in Asia (China-Taiwan)
would hold things back. Stabilisation isn’t expected until 2023 at the earliest.
“Even this will require the eventual end-users of technology
accepting that deliveries and even prices will increase,” says the vendor.
The only long-term solution is for manufacturers to
diversify their supply chain. It is clearly a fault of the current set-up that
the whole world is seemingly reliant on a few factories, mostly in China, for
components critical to the smooth running of global industries and national
economies. But creating sufficient capacity of the advanced manufacturing
facilities in other parts of the world takes years, maybe decades so it is not
a quick fix.
“Globalisation of markets has brought great economic benefit
to some companies and national economies, it prevented local or regional
economic downturns impacting global turnover too much,” says one vendor. “But
at the supply chain level, companies were apparently pursuing an almost exactly
opposite strategy – centralising production and relying on highly localised
facilities, with the inevitable results when the pandemic hit.”
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