Electronic Component Manufacturers Come Up Short

July 5, 2010 11:44 AM EDT

Electronic component manufacturers face a shortage in supply as demand increases due to the economic turnaround, according to a report from iSuppli.

The iSuppli report said the supply of various commodity electronic components such as Integrated Circuits (IC), low-voltage MOSFETs and tantalum capacitors is critically low. The shortages of these components, which power popular electronic devices, have led to longer delivery times.

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During the recession, many manufacturers cut production, shutting down factories and laying off workers. "What we saw during the steep recession, in late 2008-early 2009, was the most significant drop in the history of the modern semi conductor," said Rick Pierson, senior analyst for semiconductors and component price tracking at iSuppli.

That may have been good short-term fix, but it left manufacturers unready when demand spiked. "When the average consumers started buying iPhones, TVs and other electronic devices, the customers of these electronic components started ordering en masse," Pierson said. Increased demand may also have pushed component prices up, exacerbating shortages.

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Doug Freedman, managing director and semiconductor research analyst at Gleacher & Company, said shortages are typical in a turnaround. "The business model for the low end of the semiconductor market, which these components are, is very tight. You don't over-invest if you make money. You don't want to sit on any inventory and have an underutilized factory," he said.

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This is one reason most manufacturers are cautious in ramping up operations. Another downturn and subsequent pullback on spending would leave them with too much inventory. "It's a tough call, you don't want to ramp up too fast if the demand isn't there, that puts you in financial irresponsibility," Pierson said.

Not all electronic component manufacturers are in trouble. Pierson said Texas Instruments was one that prepared well, buying a factory and equipment at a time when prices were depressed. "They sat on it because they knew the economy would turn around. Now they are poised to take advantage and see incremental revenue growth," he said.

This article is copyrighted by International Business Times, the business news leader