Preparing for Obsolescence in an Overstocked Market

In the semiconductor industry, the current landscape might appear uncertain, with excess inventory in the OEM and EMS markets leading to a slowdown in new orders. However, this situation is not entirely unfamiliar. According to the Semiconductor Industry Association, the industry’s recent downward trend is consistent with its cyclical nature, which has historically oscillated between shortage and excess markets.

Gaurav Gupta, VP Analyst at Gartner, predicts a recovery in the market, projecting a 16.3% growth to reach $562.7 billion by 2024. Currently, the semiconductor industry is grappling with the consequences of a shift from scarcity to abundance, a phenomenon often described as a “hangover” effect. The recent shortages prompted companies to stock up on inventory out of concern for future product availability, a behavior known as the bullwhip effect, contributing to the current inventory surplus.

Another factor exacerbating this excess inventory is the incentive for customers to order larger volumes than they actually need to secure cost savings on components. Semiconductors have extended lead times and entail substantial production costs, making high-volume manufacturing the most cost-effective approach. This drive for economies of scale, combined with intense competition among companies, has played a significant role in shaping the market.

The Challenge of Obsolescence Management

As the semiconductor market begins to stabilize, companies investing in new fabs will introduce their latest semiconductor innovations. This transition has significant implications for obsolescence management.  As various legacy products will approach the end of their life cycle (EOL), emphasizing the need for proactive obsolescence management to avert costly disruptions.

A lack of sourcing options for obsolete components in the supply chain can lead to extended delivery delays or even halt production lines, resulting in financial losses for all parties involved.  To mitigate such risks intelligently, investing in obsolescence management services becomes imperative.  At Aegis Components, our commitment to our partners goes beyond simply connecting buyers to parts.  We offer a comprehensive suite of obsolescence management solutions tailored to give our clients an edge against these issues. Our range of services encompasses a wide spectrum, from the sourcing of rare components to rigorous regulatory compliance, proactive disruption forecasting, and the expert optimization of inventory management.

In summary, the semiconductor industry’s current hurdles are an integral part of its cyclical nature. Partnering with an integrated distributor like Aegis Components can provide the edge you need to navigate these market conditions. We bring specialized services and a keen understanding of market dynamics to the table. Add Aegis Components to your approved vendor list, and let our team help you make strategic and well-informed purchasing decisions.