Global Chip Shortage Affecting Availability, Forcing Prices Up, For Digital Signage Hardware
May 12, 2021 by Dave Haynes
Just as business has started picking back up for suppliers and solutions providers active in digital signage and pro AV, there is a new global problem to throw off business prospects – more demand for computer chips than supply.
We’re collectively in the midst of a worldwide shortage of semiconductors that see supplies limited, shipments delayed and, likely, prices going up for everything from countertop appliances to the various hardware components – notably screens – that are central to digital signage projects.
There are several reasons behind the shortage. When COVID hit, production was slowed by closures or reduced workforces. This wasn’t a big worry, because demand for IT products and increasingly computerized products like cars was expected to dip, as the world slipped into an expected recession.
But demand for consumer products spiked as people upgraded everything from laptops, home office monitors and webcams, to the TVs they were binge-watching through lockdowns. There were production disruptions from weather and building fires, notably a Japanese plant that produces 30% of the auto industry’s microcontrollers.
There has also been a production shift to 5G, and the cryptocurrency boom has diverted a lot of computing hardware to crypto-currency mining operations, which I would need a week and a couple of extra brains to try to explain. Suffice to say crypto-mining is seriously CPU/GPU-intensive.
The end result is that companies delivering digital signage solutions are facing the same shortages as other industries, talking to customers and partners about workarounds, delays, and, ummmm, price increases.
“It is affecting every manufacturer we work with, from media players, to signal distribution to screens,” says Peter Critchley, CEO of Beaver Trison, a UK solutions provider. “It’s impacting us through delayed shipments, price increases and sudden End Of Life status notices for equipment. This is going to get worse before it gets better. Lead times are long, and getting longer. Fixed pricing is harder to come by, and seems to be reviewed much more often.”
“Most (if not all) manufacturers that Ingram carries within this category have been experiencing inventory constraints and much longer lead-times,” confirms Jamena Haddad, a category manager with Ingram Micro’s Canadian wing. “We are seeing lead times being pushed out past 12 weeks, product not being fulfilled, and very minimal insight on firm ETA’s.”
“Price increases from the manufacturers have taken place,” adds Haddad, “and we’re expecting many more to come within the next couple months.”
Based on some responses, it’s evident this is a difficult and delicate issue for some companies, as they don’t want to broadcast more than necessary any sort of problems at a time when business is coming out of the pandemic-forced dormancy.
A distribution contact says his company is dealing steadily with the ramifications of the shortage, as well as unexpected supply issues with components like glass – something attributed to a confluence of rising demands, tariffs, shuttered factories, shipping slowdowns and a lot of glass being used for things like vaccine vials.
“Lead times are sideways, and in a lot of cases, pricing certainly is going to start going up depending on the manufacturer,” he says.
Distribution companies are being pressured to get product, like flat panel displays, ordered and allocated, but then warehouse it for 12 weeks or more. That inventory is a financial risk, says the contact, that has to be shared with the partner and end-customer.
A business friend who runs ops for a major Digital OOH company says suppliers warned him in Q1 2021 that he should order equipment for all of 2021 because of lead time and supply issues. “Which we did … and they’re now three weeks past the 12 week lead time they were predicting. Some parts, right now, are 24 weeks out.”
“We’re talking screens, computers – the lifeblood of the business.,” he says. “The crush is about to get real. My concern is that re-opening is hurt by chip shortages … finally, after 18 months, we can grow again, and there’s money, but no parts!”
The core problem for digital signage is big displays, and the semiconductors inside the enclosures that do things like drive signals from a media player to the viewing surface. That problem is compounded by the industry being relatively small compared to, let’s say, auto manufacturing. So … less buying power and clout.
Manufacturers need all the right components, not just some of them. It’s not like baking – swapping out sugar for honey in a recipe. One chip that was in short supply can come available, but then another component turns out to be scarce.
Samsung’s Mark Quiroz says he’s been communicating with partners about the state of chip and downstream product availability. “What I shared was that at a macro level, we’ve definitely seen chip shortages, because of the fact that demand was spiking, demand just far exceeded the existing capacity on the traditional chips.”
“We’d already started to see chip manufacturers shifting, with almost a quarter of that capacity to 5G with some of these newer technologies. Going back and creating more capacity on the older chipsets was just not something that was possible in the same timeframe. You’re talking about years of investment and development to do that. So, it’s just painful for everybody right now.”
Inevitably, Quiroz adds, those impacts are having severe fluctuations in our lead times and delivery. “We made the hardest decision to extend our lead times, so that it’s very clear to our customers when they’re actually going to get their product.”
PPDS, which markets the Philips display brand, is part of a larger manufacturing group that makes 60 million flat panel displays annually. The company sent a note around to partners last week saying they were “working tirelessly to ensure the smoothest possible product availability into the different markets in which we operate.”
” … should supply delays occur,” PPDS continues, “our teams will always work to ensure suitable alternative models are made available to secure your project roll outs.”
“This extraordinary situation is also likely to lead to further price pressures and our teams will keep you updated on a regular basis in order to increase transparency and immediate reactivity for our partners.”
One outcome of the shortage has been larger, deeper-pocketed companies in the signage and pro AV ecosystems buying up available stock, which has the spinoff effect of creating shortages for other solutions providers and end-users. “The big, powerhouse companies have significant size and strength and leverage to get a disproportionate share of those available chips,” says Quiroz.
“We are fortunate in that we are part of the largest digital signage integrator in Europe, so we have clear access to product, and we can forecast based on the projects we have,” says Critchley. “We are, therefore, holding much more stock of kit than we ever did. ‘Just-in-time’ delivery is very much a thing of the past.”
“Market costs” of panels are forecasted to increase by as much as 50%, but Quiroz says that’s does not mean the buyer cost jumping by that amount, as well. “Whether a manufacturer chooses to absorb some of that, or pass it all on, that’s their choice, but 50% cost increase doesn’t result in a 50% price increase … that’s your BOM (Bill of Materials) cost. But it wouldn’t surprise me to see, in general for the market, price increases in the 10 to 20% range.”
Quiroz suggests chips will continue to be short in supply into next year, but thinks display availability and lead times will shorten and normalize late Q3 or into Q4.
“It’s not just like it is just the folks in the AV industry that are affected by this. It is the whole IT industry, ” says the distribution contact. “Those companies that have the relationships, those that have financial strength, are the ones that are going to get through all of this.”
Just as the chip shortage is gaining widespread attention (there was even a pair of segments recently on 60 Minutes in the U.S.), there are hints, at least, that perhaps the shortage is easing.
Device makers may be heading towards inventory correction next quarter, as they revisit their production plans amid weakening demand in some major markets. Taiwan-based chipmakers have seen some clients slow down the pace of orders. But many still believe demand will remain robust and component and material shortages will persist – which provides motivation for Nan Ya PCB to expand production capacity. Cryptominers‘ demand for graphics cards has been extremely strong. But as they only need graphics cards to support their mining, they are expected to dump other PC peripherals and motherboards that have come with bundle purchases of the graphics cards.
So what should solution providers do?
Plan ahead. Look for viable workarounds. And be transparent with customers and partners, managing their expectations against the supply chain realities of 2021.