Distributors that specialize in hard-to-find components are seeing a significant uptick in orders, supporting reports that the supply chain could be beginning a round of panic buying.
“Companies that would normally order 10,000 components from us are now ordering 80,000 or 90,000,” says Todd Ballew, executive vice president and general manager for independent distributor World Micro.
Prices are also increasing. Uncertainty over the supply line from Japan is being exacerbated by wild fluctuations in the yen. Buyers are placing orders now in the hopes of locking in current pricing. “The Japanese government is pumping money back into their economy and that was driving the value of the yen up,” says Ballew. “It has since cooled down, but if that had continued, you'd see an additional increase in prices.”
“We are getting a lot of calls checking on price and availability,” says Rick Kauchak, sales director, North America, for independent distributor America II Electronics. Customers do not seem to be double-ordering, he says, but many want to confirm that outstanding orders can be filled.
Independent distributors source parts from components factories, from other distributors, and from manufacturers' excess inventory. On the buy side, World Micro and America II are reaching out to their sources of supply for information and to check availability. “For the most part, our open orders are intact,” says Kauchak. “But I have seen some disruption.” On the sell side, most of the activity is coming from existing customers that want to make sure the distributors can fulfill forecast demand.
Another concern is pricing, and that is more likely to fluctuate in the coming weeks. In the case of an extreme supply/demand imbalance, companies could conceivably get into a bidding war over hard-to-get devices.
“We always compete against other companies in the open market,” says Ballew, “but we try to avoid getting engaged in a bidding war. It doesn't benefit you in the long run, especially if you want to maintain long-term relationships. Companies that we already have a relationship with are confident we are quoting them a fair price.”
On the open market, prices of commodity components have increased by as much as 25 to 30 percent, distributors say. “Nobody wants to get caught in the lurch,” says Ballew, “and we are seeing some pretty unusual orders.” Kauchak says, on the buying side, product that had been available on the open market one night was gone the next day.
There is additional concern about the long-term impact of the earthquake. According to IHS iSuppli, semiconductor facilities in Japan that had suspended manufacturing activities after the earthquake cannot truly commence full production again until the aftershocks cease. Earthquakes ranging from 4 to 7 on the Richter scale will make it impossible to fully restart these fabs until they stop happening with such frequency, IHS iSuppli research indicates — every time a quake tops 5, the equipment automatically shuts down.
“This is going to be long term,” concurs America II's Kauchak. “The things that we are talking about now will not change in the next two weeks.”