Potential product shortage looms

April 16, 2021
The semiconductor chip shortage making news in the auto industry points to a bottlenecked supply chain that may spill into the security industry

While the residential security industry has seen a nearly unprecedented surge in the past 12 months, the global semiconductor shortage that is currently affecting the automotive and other industries may force a slight pause.

“You can expect shortages – probably between May and the end of the third quarter at least,” warns Dennis Holzer, Executive Director of the PowerHouse Alliance, a national consortium of regional wholesale distributors for products in the residential and commercial audio/video, home entertainment, security, networking, IT and consumer electronics accessories markets. “Some of the chips that go into cameras, (alarm) systems and cars are very close to being the same or derivations of one another. The whole industry is being hit by it.”

The semiconductor shortage has made global news, mainly due to its effects on the automotive industry, which according to experts, only accounts for a small margin of the overall demand for semiconductor chips and uses older generations that are less common. That said, the need for these older legacy chips has created a slowdown in production and shipment of the more advanced chips common in many security products, such as cameras and alarm panels.  

One positive for our industry is that distributors are well-aware of the situation, and many have planned in advance for such a shortfall. “The good thing for distributors is that we have been made aware of this, so a lot of our members have stepped up tremendously to take us further into the year than typical stock we would have had,” Holzer adds.

Holzer believes this shortage will have more of an impact on residential focused technology than on commercial and enterprise-grade security technologies – mainly due to the massive surge in demand that residential integrators have seen from people locked down in their homes.

“We are coming off a 2020 year that was, in our industry, tremendous, and obviously, that caught the vendors short,” he says. “If you would have asked me last March my outlook on the business, I would have been very down because I didn’t think anyone would let an integrator into their house. The total opposite happened.”

Holzer adds that vaccinations may lead to more travel, and with those same consumers out of their homes, it may ease the demand a bit – creating an opportunity for manufacturers to catch up on production and shipping. “It will slow the business down a little bit – which is never a great thing  but at the same time, it could help to allow all the manufacturers to get all the processes going, which they are right now as fast as they can to hopefully fill any void or shortages.”

Supply Chain Issues

Interestingly, the semiconductor chip shortage points to a much larger problem with a bottlenecked supply chain in the United States, as the massive demand for electronics and other goods for the home that came with the pandemic collided with China’s dominance in the overseas shipping and containers market.

“This is not only a chip manufacturing issue; it is also a transportation issue,” Holzer says. “Right now, getting these products into the United States is tremendously backed up. The ports are jam-packed, and they are not unloading the containers fast enough and getting them back to Asia so they can reload them and send them back.”

Add in a massive slowdown of air freight in the first months of the pandemic and incidents like the recent cargo ship getting stuck in the Suez Canal, and it creates what some have called a “perfect storm” of supply chain slowdowns.

According to Reuters, Taiwan Semiconductor (TSMC) said on Thursday it is doing all it can to increase productivity and alleviate the worldwide chip shortage, but that tight supplies will likely continue into next year.

As an industry so dependent on semiconductor chips, it is important to try and eliminate some of these supply chain issues. In that regard, the Security Industry Association (SIA) has joined a coalition of organizations in urging Congress to support President Biden’s $50 billion funding request for the CHIPS for America Act.

The coalition says providing Congressional appropriations for the CHIPS for America Act will support the diversification, expansion and resiliency of the U.S. semiconductor supply chain. The industry groups emphasized that the U.S. should encourage investment in and production of semiconductor technology by all eligible companies to strengthen the chip supply chain and recommended guarding against unprecedented market interference through direct mandates of set-asides in new manufacturing capacity.

“Semiconductor chips play an essential role in the security industry’s ecosystem by enabling security equipment to function, interoperate with other communication systems and augment traditional solutions to include artificial intelligence, 5G and Internet of Things functionalities,” SIA’s statement reads. “In light of the global chip shortage – including manufacturing and shipping delays, supply chain disruptions and increased demand for semiconductor chips that impact product manufacturers – SIA supports incentivizing eligibility for CHIPS Act funding programs.”

Essentially, this funding would help to attract semiconductor manufacturing facilities to the United States. While this would not help with the immediate shortage, it is designed to position the U.S. to be less dependent on the global supply chain in the future when it comes to semiconductor chips.

“It won't affect things immediately, but if we don't fund this, the thinking is that it will cause a greater problem down the road,” explains Jake Parker, SIA’s Senior Director of Government Relations. “The benefits would definitely be months, or years down the road, but that is the reason why we support supplemental funding that would allow this to begin to be funded before the normal appropriations process plays out.”

Click here to access the coalition's full letter to Congressional leaders. 

Paul Rothman is Editor-in-Chief of Security Business magazine. Email him your comments and questions at [email protected]. Access the current issue, full archives and apply for a free subscription at www.securitybusinessmag.com.