STMicroelectronics and Infineon Require Customers to Adapt
It is easy to forget technology that we use daily has been constructed with multiple components that are present in various other products. The semiconductor is a vital component that is required for developments in all technology use in private and public sector operations.
As product development is becoming increasingly faster, the demand for consumer electronic goods is higher than ever. As the chip shortage continues to cause problems, suppliers are pushing back against customer demand and calling out for changes to be made to their inventory and production processes.
Current State of Demand
According to the, the annual number of semiconductors sold exceeded one trillion back in 2018 and have seen an increase ever since. The SIA announced totalled around US$123.1bn in the first quarter of 2021. A 3.6% increase from the last quarter and a 17.8% increase in relation to the first quarter of 2020.
Although the Covid-19 pandemic has played its role in the Chip shortage, it is not the only cause. As developments in technology are happening at a faster rate, technology companies have been gearing up for the production of the next generation of semiconductor.
Suppliers want Change
It’s clear that chip manufacturers are pushing for companies to better manage the demand for the components.
During a discussion with the Financial Times, Jean-Marc Chéry, Chief Executive of, explained how the company’s relationship with some customers has been “unbalanced in the past.” This is likely due to the developing ‘Just-In-Time’ practices followed by many large manufacturers, which causes a struggle over who will pay the cost of keeping inventory. Currently, this responsibility lies with the supplier.
Chéry explains that “If they expect the semiconductor [suppliers] to be the bank, to keep having a big working capital to support them, they can forget it.”
European chipmaker has given similar comments recently, stating that automotive companies need to adapt their processes to procure the chips. It is expected the worst of the shortage will ease by the end of this year, hopefully giving companies time to reflect on the situation.
Action from the Automotive Industry
Around 10% of semiconductor sales are with the automotive sector. According to STMicroelectronics, the figure is nearer 30%.
Jim Farley, Chief Executive of spoke to the Financial Times on the subject. Farley seems to be on board with the changes suggested by chipmakers as he talks about how he wants to rethink the company’s approach to procuring the components.
“It was very interesting for me personally as the CEO to talk to many of our colleagues in other industries and to find out how common buffer stocks are, and how common direct buys are with the foundries, even if the company still buys the components with the chips on them from a supplier,” said Farley.
Jacques Ascenbroich, Chief Executive of French tier-one parts supplier , is on the opposing side of the argument. “You have the equivalent of a 100-year flood hitting the sector . . . Does that have to call into question the whole supply chain? I do not believe so.”
EU and US agree end to Airbus-Boeing supply chain tariffs
The EU and US have agreed to resolve a 17-year dispute over aircraft subsidies, suspending tariffs on billions of dollars' worth of goods that have plagued procurement leaders on both sides of the Atlantic.
Under an agreement reached by European Commission Executive Vice-President Valdis Dombrovskis and US Trade Representative Katherine Tai on Tuesday, the tariffs will be halted for a period of at least five years.
It will bring an end to punitive and disruptive levies on supply chains that have little to do with the argument, which became embroiled in the trade battle. Businesses on both sides of the dispute have been hit with more than $3.3bn in duties since they were first imposed by the US in October 2019, according the EC.
The US imposed charges on goods upto $7.5bn in response to a World Trade Organisation ruling that judged the EU’s support of Airbus, its biggest aircraft manufacturer, unlawful. A year later in November 2020, the EU hit back. The WTO found the US had violated trade rules in its favourable treatment of Boeing, and was hit with EU duties worth $4bn.
In all the tariffs affected $11.5bn worth of goods, including French cheese, Scotch whisky, aircraft and machinery in Europe, and sugarcane products, handbags and tobacco in America. Procurement leaders on both sides of the fence were forced to wrestle with tariffs of 15% on aircraft and components, and 25% on non-aircraft related products.
Boeing-Airbus dispute by the numbers
- The dispute began in 2004
- Tariffs suspended for 5 years
- $11.5bn worth of goods affected by tariffs
- $3.3bn in duties paid by businesses to date
- 15% levy on aircraft and 25% on non-aircraft goods suspended
Both sides welcome end to tariffs
European Commission President Ursula von der Leyen branded the truce a “major step” in ending what is the longest running dispute in WTO history. It began in 2004.
“I am happy to see that after intensive work between the European Commission and the US administration, our transatlantic partnership is on its way to reaching cruising speed. This shows the new spirit of cooperation between the EU and the US and that we can solve the other issues to our mutual benefit,” she added.
Both aircraft manufacturers have welcomed the news. Airbus said in a statement that it will hopefully bring to an end the “lose-lose tariffs” that are affecting industries already facing “many challenges”. Boeing added that it will “fully support the U.S. Government’s efforts to ensure that the principles in this understanding are respected”.
The US aerospace firm added: "The understanding reached today commits the EU to addressing launch aid, and leaves in place the necessary rules to ensure that the EU and United States live up to that commitment, without requiring further WTO action."
This week’s decision expands upon a short-term tariff truce announced in March this year. The EC says it will work closely with the US to try and further resolve the dispute, establishing a Working Group on Large Civil Aircraft led by each side’s trade minister.
Airbus last month signalled to suppliers that post-pandemic recovery was on the horizon, telling them to scale up to meet a return to pre-COVID manufacturing levels. “The aviation sector is beginning to recover from the COVID-19 crisis,” said Airbus chief executive Guillaume Faury, adding that suppliers should prepare for a period of intensive production “when market conditions call for it.”