Supply/Demand Chips ‘Gap’ to Persist ‘Likely Into 2022’: Microchip CEO

31. “In my 40 years in the semiconductor industry, I cannot recall a time where the imbalance between the supply and demand has been more acute.” Microchip launched a Preferred Supply Program to cope with the global semiconductor shortage that offers customers “supply priority” beginning six months after their order in exchange for at least 12 months of non-cancellable orders, he said. “Customer response to the program has exceeded our expectations,” with about 44% the company’s backlog “now in the PSP category,” he said. That equals nearly “100% of our backlog in some of the most constrained capacity corridors,” he said. Additional PSP backlog “continues to come in every week,” said Moorthy. “This gives us a solid foundation to enable us to prudently acquire constrained raw materials, invest in expanding factory capacity and hire employees to support our factory ramps. With the strong demand, we're experiencing constraints in all of our internal and external factories and their related manufacturing supply chains.” Microchip began ramping up its internal factories in September, plus investing in “capital additions to expand our internal capacity,” he said. “We are making incremental capacity decisions for our internal factories where possible, based on the strength of our backlog, especially our non-cancellable PSP backlog.” Through the combination of “internal and external capacity actions we've taken, we expect our overall capacity will continue to grow every quarter in calendar year 2021,” he said. Though capacity “will continue to grow every quarter,” wafer fab, assembly and test constraints “will persist through 2021 and quite likely into 2022,” he said. Microchip has no “line of sight for when things get to be normal,” said Moorthy. “The gap between demand and supply grew in the March quarter and continues to be quite large.”