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Chip shortage: Buyers sign multiyear, no-take-back deals to secure supplies, says NXP

Contracts fit automakers and other manufacturers with 'very sticky products, very long life cycles' – CEO

Chip shortages are so bad that customers are willing to sign multiyear non-cancellable, non-returnable (NCNR) contracts to secure supplies, according to semiconductor supplier NXP.

Buyers want to have clear visibility on their component orders, and "want to have it longer," said NXP CEO Kurt Sievers during an earnings call this week, adding customers "would love to have NCNRs for two years out."

This is a symptom of the across-the-board electronics shortages in sectors including industrial and automotive, which have "very sticky products, very long life cycles, so it fits the nature of those industries," Sievers said.

NXP isn't alone in this. Analyst house IC Insights reported NCNR policies are increasingly becoming popular for chip manufacturers for those worried about losing supplies.

The long-term nature of these chip orders is turning out to be a boon for NXP, which is projecting a stronger than predicted financial year ahead. The biz just reported a 28 per cent boost in full-year 2021 revenue to $11.06bn. Profit reached $6.1bn, up 43 per cent.

The confirmed order patterns give NXP better visibility on planning for 2022, "which is a hell lot of more stability than we've ever had in the past," Sievers said.

The chip industry can be extremely volatile, and is subject to up and down cycles depending on component demand and industry trends. NXP is especially seeing a big demand for integrated circuits in cars.

The company reported fourth quarter revenue of $3.04bn, up by 21.2 per cent year-on-year. Over half of the company's sales for the quarter was from the automotive sector, totaling $1.55bn, up 30 per cent compared to the same quarter in the previous year.

Some unique ordering patterns are emerging for customers to secure chip supplies. Car makers are signing long-term agreements with chip giants to nail down vehicle hardware plans and to ensure a flow of parts following stringent testing and validation of self-driving systems.

Texas Instruments is seeing orders for "matched sets," or a coherent set of components to build a complete computing device, versus expedited orders for specific components.

For companies like NXP and TI, which operate chip fabs, clarity on order patterns helps the company adjust orders and project costs for raw materials, which are also in shortage, Jim McGregor, principal analyst at Tirias Research, told The Register.

Sievers talked about NXP's S32 family of products – which includes hardware and software – for laying down network architectures in cars. S32 connects different components in a vehicle, and also includes microcontrollers and processors for radar and lidar.

"One of the big features here is going to be over-the-air updates, including the required security, so to make sure that the performance of the car over its lifetime can be upgraded by software updates without changing the hardware," Sievers said.

Ford will be putting S32G network processors in multiple models for gateway functionality. ®

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