How do orders get placed with semiconductor manufacturers?

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Can anyone give a flavor of how orders get placed with semiconductor manufacturers?

I was originally under the impression that if Company XYZ wants to order 100,000 chips per month from Megalogic Inc, they contact Megalogic and tell them, "I need 100,000 chips as soon as you can" and Megalogic says OK, we can supply them in 8 weeks at this price, and then XYZ places an order.

But I'm guessing that it's more complicated, and there might be an order placed ahead of time for delivery in, say, 20 weeks, even though the minimum lead time might be 8 weeks...

How far in advance do large companies place an order? (Under normal conditions, never mind the crazy 52-week lead times in the last couple of years.)

 

[hskuo]

Are your Megalogic Companies like MTK, Qualcomm, TI.... or Fab manufacturers like GF, Samsung, TSM, UMC, Tower?

 

[Munich]

Especially in automotive, them Bosch, Conti, Valeo, etc. are sending a rolling forecast for the next 52 weeks (some of them only 25weeks) which is binding. Cancellations, decreases and increases are of course happening all the time but then the frozen windows are super important - meaning, you can't modify anymore your order that was supposed to arrive in 4 weeks from now; if it's a dedicated product only for that specific customer, you might have a frozen window even around 3-6 months to protect yourself the best you can.
Prices are negotiated at the end of every year for the next year.

 

[jms_embedded]

Are your Megalogic Companies like MTK, Qualcomm, TI.... or Fab manufacturers like GF, Samsung, TSM, UMC, Tower?

Good point, I meant the companies that actually sell the finished goods in packaged form (fabless/fab-lite/IDM), so Qualcomm, Nvidia, TI, NXP, Renesas, etc.

 

[hskuo]

Good point, I meant the companies that actually sell the finished goods in packaged form (fabless/fab-lite/IDM), so Qualcomm, Nvidia, TI, NXP, Renesas, etc.

Quick answer from Microsoft Bing
According to a report by Avnet, 93% of engineers are experiencing delays in chip shipments, with longer lead times. Among the most problematic parts are microcontrollers (MCUs), with delays stretching 50 weeks 1.

On average, across chip types, delivery lead times were 27 weeks in January 2023, 9 weeks below their January 2022 peak 2. However, the shortage continues to hit the industry unevenly. Lead times for field-programmable gate arrays (FPGAs) and MCUs remain high 2.

 

[jms_embedded]

Quick answer from Microsoft Bing
According to a report by Avnet, 93% of engineers are experiencing delays in chip shipments, with longer lead times. Among the most problematic parts are microcontrollers (MCUs), with delays stretching 50 weeks 1.

On average, across chip types, delivery lead times were 27 weeks in January 2023, 9 weeks below their January 2022 peak 2. However, the shortage continues to hit the industry unevenly. Lead times for field-programmable gate arrays (FPGAs) and MCUs remain high 2.View attachment 1531

Appreciate the answer, but that's a description of lead time (as of January 2023, and lead times have dropped significantly since then).

I'm more familiar with the causes of lead times.

What I'm asking for is how far in advance a typical large customer would place an order.

Imagine standing in a long line for a food truck:

Lead time = when you go to the end of the line, how long are you going to have to wait before you can get your food? ( = time for the food truck to prepare your food + all the other people who are waiting in front of you)

What I'm asking (sort of) is when do you decide to stand in line?

Plus, it's presumably different because even if the lead time is low (say, 2-4 weeks), I'm guessing some companies who are buying semiconductors with a decent forecast of their needs will place orders further in advance than the lead time. And the companies selling the semiconductors may want to ask customers to place orders slightly further in the future than the lead time, so that they can accommodate last-minute expedite requests. I'm not really sure, which is why I'm asking.

 

[Munich]

The forecast the customers are sending is not necesarily based on the lead times you will have. As I said, most of them are sending 52weeks forecast and if increases are happening in the lead time then you will support that only if you want/can but you're not obliged to as lead times are contractually agreed (part of your T&Cs). In the end, even your most important customers are screwing up their forecast now and then (like it was the case in 2021) and you will end up trying your best to support them at the cost of other customers, or not, depending how healthy your inventories are. Moreover, standard transit times are around 6-7 days but during emergencies (again like in 2021) everything is expedite with special carriers (sometimes even with helicopters) at the cost of the ones that accept it's their fault.
Now, for small customers with one time orders, they would probably go to a Distribuitor who is supposed to have stock to support those orders. If not, then badluck

 

[jms_embedded]

The forecast the customers are sending is not necesarily based on the lead times you will have. As I said, most of them are sending 52weeks forecast and if increases are happening in the lead time then you will support that only if you want/can but you're not obliged to as lead times are contractually agreed (part of your T&Cs). In the end, even your most important customers are screwing up their forecast now and then (like it was the case in 2021) and you will end up trying your best to support them at the cost of other customers, or not, depending how healthy your inventories are. Moreover, standard transit times are around 6-7 days but during emergencies (again like in 2021) everything is expedite with special carriers (sometimes even with helicopters) at the cost of the ones that accept it's their fault.
Now, for small customers with one time orders, they would probably go to a Distribuitor who is supposed to have stock to support those orders. If not, then badluck

Yeah, I'm talking about the customers who are large enough they can bypass the distributors and place orders directly with the semiconductor manufacturer. (Or distributors themselves.)

 

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So let's say a large customer has a new design coming into production and...

- They want to order Megalogic part #RSTUV
- They contact Megalogic on Jan 1
- Lead time for #RSTUV is presently 3 weeks (Jan 22)
- They are trying to schedule a build for Mar 1 and would like to set a buffer of 2 weeks (Feb 15) and know that the shipment takes 2 days (Feb 13)

What does a typical order negotiation look like? Customer says "I want to place an order for shipment Feb 13"?

If the customer tries to accelerate their build faster, could they actually place an order for shipment Jan 22 or is the manufacturer going to discourage that by charging expedite fees or something?

 

[Munich]

So let's say a large customer has a new design coming into production and...

- They want to order Megalogic part #RSTUV
- They contact Megalogic on Jan 1
- Lead time for #RSTUV is presently 3 weeks (Jan 22)
- They are trying to schedule a build for Mar 1 and would like to set a buffer of 2 weeks (Feb 15) and know that the shipment takes 2 days (Feb 13)

What does a typical order negotiation look like? Customer says "I want to place an order for shipment Feb 13"?

If the customer tries to accelerate their build faster, could they actually place an order for shipment Jan 22 or is the manufacturer going to discourage that by charging expedite fees or something?

For the sample builds before production they normally place manual orders of 1 or 2 reels and you support those from your sample store on short notice and even free of charge sometimes if that's a big project. Your sample store has to always be full for this type of manual orders. Once they go into production the orders are coming via SAP on the principles mentioned above (rolling forecast).