Are you struggling to get the audio hardware you want for your studio? You are not alone and there are a growing number of reasons as to why this is the case. In this article, we explore the reasons. Lead times are very long. With that in mind, let’s look at the reasons why you might not be able to buy your chosen audio hardware anytime soon.

The Semiconductor Chip Shortage

There is a global semiconductor shortage, which continues to cause headaches for many industries. Manufacturers of PCs, mobile devices, gaming consoles, vehicles, networking devices, and industrial machines, as well as the AV sector including the pro-audio industry are all scrambling to buy enough chips to use in their products amid surging demand for those same products.

Intel, the world's largest manufacturer of x86 CPUs for PCs and data centres, suffered a chip shortage back in 2018 after its troubled development of new 10nm chips impacted its production of 14nm chips. It hadn't resolved that shortage when it suffered another setback in 2020 delaying the launch of its new 7nm chips.

Meanwhile, memory chip prices soared in 2017 and 2018 but started to drop back in 2019 and 2020 amid sluggish demand from the PC and smartphone markets. In response, top DRAM and NAND chipmakers -- including Samsung, SK Hynix, and Micron Technology reduced their output before the pandemic, (big mistake).

The Pandemic

As you can see, the market was already wobbly when the pandemic started in early 2020. Initially, the pandemic temporarily disrupted semiconductor shipments as global demand for technology in general, surged in response to remote work, online learning, and other stay-at-home trends.

In mid-2020, Cisco’s chief executive, Chuck Robbins, shared his thoughts on when the global chip shortage may end. Chuck told the BBC…

“We think we’ve got another six months to get through the short term. The providers are building out more capacity. And that’ll get better and better over the next 12 to 18 months. Semiconductors go in virtually everything, and what happened was when Covid hit, everyone thought the demand side was going to decline significantly and in fact, we saw the opposite. We saw the demand side increase”.

Most chipmakers were able to recover from their initial disruptions, with TSMC able to stay online because its most advanced plants in Taiwan weren't affected. But they were still affected by decisions made months before. For example, in May 2020, TSMC said it expects the chip supply shortages to continue through 2022. The computer processor making giant AMD had said earlier this year that it is expecting the semiconductor scarcity to hit the industry even longer.

The situation was compounded by the fact that the pandemic has seen a rise in the demand for consumer electronic products like laptops and video game consoles and factories have found it difficult to scale up chip manufacture to the required levels. TSMC's factories have already been running flat out since May 2020, and the company announced that it would spend $100 billion over the next three years to expand its operations.

Intel also recently warned that the global chip shortage could last two more years and would require "immense" investments to resolve.

Global Cycles Of Supply And Demand

Global demand for chips has generally been cyclical over the past few decades. As supply capacity grows, the price comes down. The manufacturers, react by reducing capacity, which brings the price back up, but the challenge with the chip supply, isn’t as simple as turning on a button to make more chips. It can take between 18 months and 3 years to bring a semiconductor plant on stream, which can extend the famine part of the cycle.

However, we understand that the growth of new technologies including cloud services, 5G networks, and AI services, is feeding a ‘supercycle’ of chip upgrades that could last much longer than a traditional cycle.

Many chipmakers had expected this supercycle to significantly boost their sales prior to the pandemic, but the crisis produced a double whammy by accelerating many of those trends while temporarily disrupting supply and it is expected that this pressure will cause the global chip shortage to drag on.

Apple Affected Too

Apple has not been left unaffected by the global chip shortages. During the company's 2021 third-quarter earnings call, Apple CEO Tim Cook warned that the chip shortage that has plagued the industry would impact iPhone shipments this year.

While the ‌iPhone‌ and Apple Watch are getting updated, the impact on other Apple products is less certain. For example, the 24-inch iMac, powered with the M1 Apple silicon chip, is currently suffering at least three to four-week delays with reports that all products with the ‌M1‌ Apple silicon chip are currently experiencing some form of delay, but it’s not clear whether this is as a result of the global chip shortage for because Apple underestimated the number of M1 powered computers they would sell, with those pesky lead times.

In recent months, several reports have suggested that Apple's suppliers are struggling to keep up with demand. Specifically, Apple’s suppliers for mini-LED displays to be used in upcoming M1X MacBook Pros have reportedly struggled to reach satisfactory output levels, possibly pushing Apple to invest in procuring additional suppliers and then being hit by lead times.

Help On The Horizon For Some But Not Anytime Soon

To try and resolve some of these shortages, United Microelectronics Corporation (UMC), the world’s fourth-largest contract chipmaker, has announced that they are expanding their capacity to produce chips in exchange for financial guarantees, in response to the shortage gripping the global semiconductor supply chain, but is made under a deal that commits several of UMC’s largest customers to pay deposits upfront and guarantee certain orders at a fixed price, which is very unusual in this sector. However, even this deal will still take at least two years to come to fruition, highlighting the depth of the constraints on the semiconductor supply chain.

Semiconductor Factory Fires

You may recall our article AKM Factory Fire Could Affect Supply Of A to D And D to A Convertors For At Least 12 Months back in October 2020 in which we reported that there was a fire at the Asahi Kasei Microsystem (AKM) semiconductor factory in Nobeoka city in Japan on 20th October 2020. The plant is known for the production of high-end DACs/ADCs IC components for high-end audio devices.

At the end of January 2021, Asahi Kasei Microdevices Corporation (AKM) reported the following…

“At the current time, there is no clear prospect for identification of the cause of the fire or for restoration of operation of the plant.”

In terms of product supply, the January 2021 report said…

“In late November 2020, we began shipping product inventory which had been stored at the plant. We have discussed with our customers about the possibility of switching to alternative products and requested other semiconductor manufacturers to supply such alternative products to our customers where possible. Regarding cases where alternative products are unavailable, we are advancing preparations for substitute manufacturing. Currently, several semiconductor manufacturers are cooperating with this endeavour regarding certain products.”

We have learned that all of AKM’s audio-related chips were produced at the now-closed factory and that AKM chips are used in a wide range of pro-audio and high-end consumer audiophile manufacturers, including Solid State Logic, TASCAM, miniDSP, Merging Technologies, SPL of Germany, Focusrite, RME, Schitt Audio, SMSL, Monoprice and others.

This meant that in one incident, all of AKM’s audio-related manufacturing was wiped out in one fell swoop blindsiding many of its customers. For example, Hermann Gier, managing partner of SPL of Germany said…

“We were unaware that only one facility manufactured the AKM DACs and ADCs—that shows how small our industry really is. Fortunately [we are] in a comfortable position, while we use AKM converters in a number of our products, including the Crimson, Madison, Phonitor range of headphone amps, and the Marc One interface, among others, SPL has stocks in-house that we estimate will last between six months and a year, depending on the product.

A week after the fire, a number of brands were reeling from the impact this loss would have on their businesses. Chris Hollebone, sales and marketing manager at Merging Technologies said…

“I still have close to zero information as far as the AKM prognosis is concerned. As far as we are concerned, we are taking stock, literally, over the weekend and trying to ascertain whether an order that was about to be delivered was destroyed in the fire or might still make it…. We have enough parts in-house to keep us going for a while, but not knowing when any production might start may cause us headaches down the line. It is a bit like COVID-19—very hard to predict!”

Paul Youngblood, Director of Product Marketing at TASCAM, admitted…

“This has all happened so fast that all we can say is we are still in the process of analyzing the situation.”

A spokesperson for RME echoed that sentiment, stating that the company was…

“currently still ascertaining information, and it’s too early for them to comment.”

Millennia Media reported on their Facebook page…

“A shock to the professional and consumer audio industries -- the largest provider of audio ADC and DAC chips "AKM" has experienced a fire in their fab line. I'm told they could be off-line for a year. The disruption to our industry will likely be massive, with possible re-designs to untold numbers of products.

Millennia uses top-line AKM converters in the new HV-316 remote mic preamp. Luckily, we have enough stock to last us for roughly one year of demand. We will be re-designing the ADC circuit in case AKM is not back by 4Q21, assuring no disruption in HV-316 shipments.”

John La Grou, CEO of Millennia Media is on record as saying…

“Every AKM part we use—ADCs, DACs, ASRCs and Receivers—is made exclusively in the Nobeoka plant. It’s probably the most disruptive event in my 40 years of audio industry experience. Devastating is not too strong a word. Can 2020 get any worse?”

Most brands are understandably are being tight-lipped on the direct impact will be on their businesses, but we understand that Solid State Logic’s popular SSL 2+ USB interface; RME’s ADI-2 Pro AD/DA Converter; multiple Merging Technologies Horus & Hapi and Anubis AD/DA interfaces; miniDSP’s SHD streaming audio processor are examples of some of the products affected.

Avi Rosental, managing partner of Bluesalve Partners, a firm that helps companies bring products to market which can include sourcing components explained...

“Every high-end audio brand uses AKM DACs in their equipment, and there wasn’t a really effective or efficient replacement for an AKM chip on the market. To substitute a DAC from another manufacturer means a redesign of the system. It’s not just ‘take out the AKM part, put in the Cirrus Logic or TI part,’ it’s a complete redesign, and you have to go back through the testing. As a result, product delays can be exponentially compounded”.

We have since learned that a number of brands are following Millennia’s lead and started to redesign their products to eliminate their dependence on AKM chips. For example, Pioneer DJ has announced that they have had to change the D/A convertors from 32bit to 24 bit in their DJM-750MK2, XDJ-XZ, DDJ-1000 and DDJ-1000SRT products whilst they have sourced an alternative 32-bit D/A convertor for their CDJ-3000 professional DJ multiplayer.

We have also become aware that a lucrative trade has blossomed with the remaining worldwide stock being traded. We have heard reports of one brand that has been able to make more profit for its stock of chips than from the finished units that use these chips.

John La Grou, CEO of Millennia Media said…

“Of course, all AKM audio parts immediately disappeared from front-line distributors [such as] Digikey, Mouser, etc. And now the after-market brokers are selling AKM parts at horrific mark-ups. We saw one $5 AKM part being offered at $110 each.”

However, when it comes to the Millenia HV‐316 remote‐controllable microphone preamplifier, which was introduced in September 2020, which although based around AKM ADCs, the company had wisely, in retrospect, purchased a year’s worth in advance to meet expected demand. John anticipates Millennia will be able to ship the HV-316 with AKM ADCs until the fourth quarter of 2021, by which point it was expected that the Nobeoka factory could be back online. But very wisely, given the shortage of AKM chips for the foreseeable future, Millennia has been busy redesigning all its affected products, including a number in development.

The only glimmer of light at the end of this tunnel was an expectation voiced by Millienia’s CEO…

“There’s a rumour that AKM will pivot their IC masks to independent fab houses, so perhaps we’ll see some AKM devices before the main plant is again operational.”

In January 2021, it was reported that AKM was trying to outsource the manufacture of some of its products and Japanese semiconductor manufacturer Renesas was stepping up to ease the shortage by lending part of its capacity to AKM in order to alleviate the shortage on the market.

But this was short-lived because there has been another fire, this time at the very same Japanese chip manufacturer Renesas Electronics, who had just 2 months earlier agreed to lend part of its plant to AKM. Renesas’s plant was hit by fire on March 19 following a power surge in one of the machines. This fire and the consequential loss of production has put even more pressure on the broader chips industry amid a global shortage of semiconductors that is hurting the production of cars, smartphones and home appliances. At the time, the company has said that it will take at least 100 days to get back to normal production at its fire-hit plant, but we are not able to confirm if they have been successful.

In April 2021, AKM reported in a Japanese language update almost six months after the fire, the company announces that it will start the recovery process saying that the investigation into the cause of the fire is still ongoing, but with the consent of the police and fire department, AKM will start removing debris from the fifth floor of the factory building in mid-April.

The update also revealed that the fifth floor of the factory is severely damaged, including a collapsed ceiling, which means that any kind of construction will be carried out with consideration of potential impact to surrounding areas.

But still no indication as to when the AKM plant will be back on stream.

Shipping Costs

Another factor at play here is the jump in the price for international shipping charges, and bearing in mind that more and more of what we buy is manufactured in the Far East, there have been reports of the cost of importing shipping containers from China has risen by up to 800% with a number of factors being cited, including the pandemic, being behind this surge in prices.

For example, we have seen reports that pre-Covid, shipping costs for a 20ft container from Asia were $1,200, plus local charges of roughly $300. This is not the case anymore, as the costs have risen to $10,800 for a 20ft container, a 40ft container is double that.

This kind of increase can make the difference between being profitable and not. We understand that this is due to a supply and demand issue because of reduced capacity coming in from the Far East, which means there are fewer ships and they are full and so the shippers can charge more.

Seamus Leheny from Logistics UK told the BBC…

"Imports from China have seen rates increase from anything between 500 and 800%. In terms of exports, one local business told me recently that they've seen their rates to the USA increase by 600%. Ten years ago there were 20 shipping companies shipping from the Far East into Europe. Today we have about seven due to consolidation so there is less competition on the market. The pandemic has had an impact as demand fell off very quickly in 2020 with economies closing down and when they reopened, the ports in the Far East were congested and the ships were on reduced capacity and it could be next year before costs begin to fall.”

What Now?

The honest answer is we don’t know and brands are choosing to say very little about the results of these shortages, probably because they don’t have any helpful answers. Most of the issues that we have outlined in this article are outside the control of brands.

In addition, none of these issues are things that are easily or quickly fixed. Long lead times have always been part of this equation, they have always been there. The factors outlined above show how fragile the system is and how easy it is for a perfect storm to affect it.

So batten down the hatches, we could be riding this storm for some time.