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Reality Check: Semiconductor company supply chains unprepared to meet mobile device demand

Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.

Mobile devices such as smartphone and tablets require powerful and innovative semiconductor chips far superior to those found in typical consumer electronics products. These chips are now in high demand because smartphones and tablets are in high demand. As such, chip manufacturers need to make more sophisticated chips and deliver them to market extremely fast – a tall order for sure.

So far they have proven unprepared to deliver on these requirements. To do so, they need to completely overhaul their supply chains with the goal of increasing the speed and efficiency of their chip development processes. Accenture arrives at this conclusion based on a new report titled “Semiconductor Supply Chains: An Urgent Need for Change.”

Historically, supply chains for desktop PCs and industrial equipment have been relatively stable and predictable. Chips needed to be developed and delivered to manufacturers in roughly a year or two. But chips for mobile devices require a much faster turnaround time, sometimes in less than six months, to keep pace with the number and types now flooding the market. It’s becoming more difficult for chip makers to determine future pricing levels and overall volume demand for mobile devices. Higher inventory levels are being used as a safeguard against shortages. But with that come the added costs of managing a massive inventory.

The complexity of individual mobile devices has also increased in the past few years. Mobile device manufacturers are demanding more multi-function devices such as cell phones with higher resolution screens, and more applications such as mapping, that require more powerful semiconductor chips. To illustrate, a recently released Accenture survey found that consumers are less likely to buy single-function electronic products in the next year, while intentions to buy multi-function devices, such as smartphones and tablets, have increased dramatically. Accenture summarized these findings in a report titled “2013 Global Consumer Electronics Products and Services Usage Report.”

With all this to consider, the question is this: Can chip companies keep pace with the production of next generation mobile devices? If they make changes to their supply chain, the answer is yes, but if they don’t it’s not likely. Accenture recommends chip makers take the following steps:

–Gain more visibility into design and supply chains: Chip vendors need to be involved early in device manufacturers’ developmental process especially during the product concept phase. Early involvement enables them to anticipate product requirements and adapt processes naturally as the product changes. This up-front participation provides more flexibility and minimizes future redesigns. Likewise, open access between both parties improves collaboration and guides better product launches.

–Modernize productions: Smartphones and tablets have unique chips requirements; they are not the same as those found in desktop PCs, servers and other industrial equipment. They need to pack more processing power and long-lasting batteries within a smaller size product. Because the product differs, the process for producing them also should differ. Two processes worth considering: Introduce smaller semiconductor manufacturing processes and NAND memory production.

–Concentrated integration: Innovation can more readily surface from a multi-functional, integrated base. On a technical level, semiconductors can accomplish this directly onto the chip itself. Integrating analog, mixed-signal and digital components within advanced nodes produces higher-performing chips with more features, lower power use and faster time to market. When chips are built with capabilities that leverage system designs or embed software, further innovations are possible. Chips with multiple layers of active electronic components integrated vertically and horizontally on one plane, known as three-dimensional integrated circuits, are an ideal technology for mobile devices.

–Use relationships to enhance capacities and skills: To fully produce chips for mobile devices, chip manufacturers will likely not have all the necessary resources in-house. They need to look outside the company by collaborating with businesses and organizations that do. Access to these resources extends agility, improves asset use and delivers the latest innovations.

–Level up on demand fulfillment: Chips manufacturers need to recalibrate production capacity and inventory planning to fit within the shorter fulfillment window of new mobile devices. The latest software for logistics and demand forecasting are ideal investments for better controlling sudden spikes in demand, creating shorter fulfillment times and expediting large inventory volumes.

Mattias Lewren is the global managing director of Accenture’s Electronics & High-Tech Group. He can be reached at [email protected]

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