Chip Supply Chain Isn’t Broken — Just Mishandled, ADI CEO Says

(Bloomberg) — Analog Devices Inc. Chief Executive Officer Vincent Roche said the semiconductor shortage hurting automakers around the world is a problem many of them brought on themselves.

“We’re racing to keep up with the demand from the automotive customers, but remember, automotive made the problem,” Roche said Wednesday in an interview. “It wasn’t too long ago they were asking us to take product back and to cancel backlog.

”The supply chain of the crucial electronic components has come into focus as major vehicle makers such as Ford Motor Co. and General Motors Co. have complained that a dearth of chips is crimping their ability to boost production and meet demand. While supply in general is tight, Roche said, ADI is keeping up with orders in what will likely be a record year of growth for the chip industry.

The Norwood, Massachusetts-based company has posted sales gains for the past two quarters and is on track to report higher revenue in the current period, demonstrating that it has been able to secure enough supply of its own chips from outside manufacturers. ADI does a mixture of manufacturing in-house and outsourcing of production.

Roche said that from start to finish it takes as long as 15 weeks to manufacture, package and test a chip. That’s a mismatch with the way automakers typically manage their supply, holding very little inventory and expecting suppliers to be able to respond to their orders in just-in-time arrangements.

Roche said his company is benefiting from strong demand from industrial customers as they look to modernize factories and add greater automation. In general, when automakers cut orders, production was transferred to other areas such as gaming, consumer, data centers and health care. ADI is closely watching for signs that its customer base is building inventory, but Roche isn’t concerned, because the company believes current shipment levels reflect sales of the devices that the chips go into.

“The supply chain isn’t broken — it’s been mishandled in certain places,” he said.

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