Semiconductor Shortage Still a Concern for Device Makers

Medmarc Insurance Group

July 25, 2022

3d rendering robotic arms with silicon wafers for semiconductor manufacturing

The shortage of semiconductors continues to present problems to the medical device industry, a critical issue for patients in need of devices that are largely or entirely dependent on these products. The second in a series of surveys conducted for the Advanced Medical Technology Association (AdvaMed) states that the ongoing conflict in Eastern Europe is further exacerbating the predicament, and that device makers see little reason for optimism in the near term.

AdvaMed’s July 2021 survey of device makers disclosed that industry was already experiencing problems obtaining the computer processors and other semiconductor chips needed to make their devices, although most manufacturers had devised a series of work-arounds. However, the latest survey, conducted by Deloitte in April 2022, disclosed that many companies have depleted their inventories, leading to a suspension of or a reduction in the manufacture of the affected devices.

Approximately half of all medical devices include a semiconductor chip of some sort, but that volume of usage represents only about 1% of the overall market for these products. More device products are using these semiconductors, however, such as smart orthopedic implants, thus increasing the pressure on an already constrained market.

Some of the issues with supplies were known in 2021, such as the impact of the COVID-19 pandemic on production in China. However, Russia’s invasion of Ukraine in February 2022 represents another complication, given that Ukraine is a major source of the neon gas used by lasers in the manufacture of microprocessors and memory chips. However, Russia is another key player in the supply chain as it one of the largest exporters of palladium, which is one of the materials used in chips, the Deloitte report stated.

One of the near-term risks to the supply chain is the fact that Taiwan, a major exporter of chips, is located in a part of the globe that is seen as at risk of destabilization by regional conflict. The Deloitte report states that the chip shortage has led some original equipment manufacturers to order more CPUs and memory chips than they ordinarily would, triggering a rash of hoarding that is exacerbating an already difficult situation.

According to the Deloitte report, the latest survey suggests an undercurrent of pessimism among device manufacturers regarding the prospects of short-term relief. Nearly four in five respondents indicated that they are experiencing lengthy wait times for fulfillment of orders, which in some instances has run to 12 months or longer. Many respondents suggested that the issue will not resolve until early 2023 at the inside. Three in four of respondents said their customers in the hospital industry are seeking alternatives to the device products that are now in short supply due to the semiconductor pinch, representing a significant hit to the fortunes of device manufacturers.

Many members of the device manufacturing industry are moving away from sole-source contracts for their semiconductors, and are increasingly turning to brokers to reestablish a supply chain. Prior to the pandemic, only 13% of the survey respondents had established or increased their standing semiconductor inventories, but that number has reached 70%. Device manufacturers must learn to be more nimble in response to these crises, the Deloitte report stated, but AdvaMed is working with the Biden administration’s Joint Supply Chain Resilience Working Group in an effort to forge a national strategy that will render a national supply chain that is both more resilient and more agile in responding to shortages of critical supplies, equipment and materials that are crucial for medical devices and for patients.

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