Motorola is currently experiencing the impact of global semiconductor shortages, leading to significant changes in its procurement and logistics strategies. During a recent Q1 earnings call, CFO Jason Winkler revealed that Motorola is resorting to purchasing semiconductors at a premium from secondary markets, as direct manufacturer supplies remain constrained.
The company has allocated a substantial portion of its 2022 budget to address this issue. Out of an earmarked $120 million, $100 million is designated for the first half of the year and $20 million for the latter half, specifically for semiconductors unobtainable directly from manufacturers.
These procurement challenges, Motorola has switched its primary shipping method from ocean to air freight to expedite the delivery of these critical parts. This shift has led to increased costs, particularly in light of the rising airfreight rates, which have been further exacerbated by the geopolitical situation following Russia’s invasion of Ukraine.
Motorola’s CEO Gregory Brown noted that despite the higher costs, this approach has enabled the company to secure some essential components earlier than anticipated. However, the financial impact is significant, with an additional $50 million spent on semiconductors in Q1, and a similar expenditure expected in Q2.
To mitigate the impact and optimize profits, Motorola is focusing its limited semiconductor supply on high-value products, especially in its public safety networks sector. Brown highlighted that this strategy contributed to better-than-expected performance in Q1 due to prioritizing parts of the portfolio with higher average selling prices.
The company is also investing in research to increase the number of substitutable parts in its products to reduce dependency on specific semiconductor types. The ongoing semiconductor supply crunch has prompted massive capacity investments by chip manufacturers, driven by increasing demand from various sectors, including smartphones and automotive industries. While companies like Motorola navigate supply challenges, semiconductor manufacturers have reported significant revenue increases due to the high demand for chips.
The semiconductor supply situation remains uncertain, other major companies, such as AT&T, are also preparing contingency plans. AT&T CEO John Stankey mentioned that while chip vendors have assured adequate supply for their products, the company is conducting thorough due diligence and preparing alternative strategies should the expected supply fail to materialize.
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