Take Five with Matt Anderson: Chips are down when sales are up

Feature Take Five With Matt Anderson Panel
Diana Bloss, an assembler who works on the production line at Sound Devices, works on a piece of equipment at the company’s Reedsburg facility. Due to shortages in computer and audio chips, Sound Devices has seen prices for chips increase significantly, leading to a 6% price increase across its product range.

Matt Anderson, president of Sound Devices LLC, Reedsburg, has seen how supply chain disruption and the shortage of computer and audio chips are impacting business, and it’s not a pretty picture. The Sauk County manufacturer of audio products serves the audio industry, so the computer and audio chip shortages are frustrating at a time when sales volume is healthy. In this Take Five interview, he discusses the impact of global forces on his Wisconsin manufacturing business. 

The questions I have about inflation and energy costs are interrelated, but from your perspective as the president of a manufacturer, how is higher inflation affecting your pricing on anything you sell, any service you provide?

“It has factored into our environment. We design, manufacture, and sell [worldwide] audio products for the professional audio market. We sell around the world, and all the piece parts, the electronic piece parts, that get soldered to the PC boards, there is just a massive, massive worldwide shortage of those going on right now. Which I know you’ve heard about from automotive and everything else.”

You mean computer chips.

“Yes, every kind of chip that there is, there are shortages on. This has shut down GM and Ford and all the auto manufacturers. It’s hurt them quite severely, but even for small manufacturers like us, it’s having an enormous impact.”

Is it hurting you more on availability of product or pricing?

“Well, both because there is such a shortage of parts, the prices of the parts have skyrocketed. In a lot of cases, we’re having to go through brokers to buy them. So, normally, for a given computer or audio chip, or any kind of chip like that, we go through distributors, and we place a PO [purchase order] and they send us chips, and we solder them, and we’re happy. But as an example, a chip that would normally cost $15, we’re now having to pay $170 for those because there is such a shortage, and we’re buying them from brokers, and this is not uncommon. I’ve spoken to electronics manufacturers in our industry around the world, and everyone is going through this. You can imagine that piece parts going from $15 to $170 has a huge impact on us and what it costs to make stuff, so we’re having to raise prices on our gear so that we can still make a little money and stay afloat.”

Can you say how much exactly? Quantify it in terms of a percentage range?

“Yes, we did a price increase a few months back of 6% across our product range, and that’s not uncommon. In the audio industry, that’s been pretty typical.”

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Matt Anderson, Sound Devices

Is it strictly a supply chain issue, or is it supply chain, labor, and several things coming at you?

“Yes, labor is an issue also. We have had open [positions] for months and months and months. It’s very, very difficult to find skilled technicians who can troubleshoot and help build products. It’s another worldwide thing — it’s acute here — and so it’s hard to get people, it’s hard to get parts, and the frustrating thing is that our orders have never been better. So, the demand is just incredible, and we can’t build the stuff fast enough because we can’t get parts.”

I would imagine that’s going to have a huge impact on the holidays, including electronic devices that we all depend upon — including the electronics that we enjoy art and entertainment on these days. How does it impact you?

“Now, our company, we don’t follow that traditional cycle with the holidays much because our stuff is used by professionals out there, and so there is not the consumer element to our sales. But — and you’ve probably heard all about this — shipping via the ocean is just incredibly crazy right now. Everything is backed up in California, all these container ships trying to get in. We’ve changed all our shipping to air freight at this point because we simply can’t get stuff over the ocean. I’ve heard most of that Christmas stuff that tends to come from East Asia is going to be really problematic this year — just getting it across the ocean.”

Do you have any other concerns right now?

“Yes, COVID is still an issue. While it has kind of gotten better around here, it’s more of a worldwide COVID thing, so suppliers that we talk to in various parts of world here and there are still shut down and suffering from this, and that affects our ability to get parts.” 

Is there any clearing on the immediate horizon?

“Unfortunately, we talk about this every day and, again, talk to everyone we know around the world. Nobody has very good news now, especially with the semiconductor shortage because this is just so brutal right now. To give you an example, Texas Instruments is an enormous manufacturer, and their chips go into automotive, into audio gear, and into just about everything. What I’ve heard is that in the last year, their sales have doubled and it’s just kind of a staggering increase. These chip fabs [fabrication plants] where they make the semiconductors, these are exceedingly high-tech places. They are not the kind of thing where you can just say we’re going to put up a new fab. It’s a multiyear process with billions and billions of dollars, so I think the demand has just sharply exceeded supply at this point, and all the semiconductor fabs are playing catch up.

“There is a bit of an element of a run on the bank thing because manufacturers like us hear about a shortage of parts, and they go buy everything they can and it’s a compounding effect. I think it’s going to at least be another couple of years of this cycle we’re in.”

To what extent are they pondering the building of these facilities back onshore in the U.S.?

“They are. I know that Intel is putting some fabs up here and TI [Texas Instruments] is also, but it’s really a worldwide thing. Even though Intel and TI, from what I’ve read in the news, are putting tens of billions of dollars into this, it’s not going to happen overnight. None of those fabs are going to be online for at least two years. When they are, it will be great, but it just takes a long time to build those and get them up and going.

“I don’t think it has a lot to do with permitting. It’s that the construction of it and then the machinery inside to make the chips is super specialized. It’s all clean room kind of stuff, and then of course you must staff the plants, and all people who work there are highly specialized technical people. Those kinds of people are in short supply already. It’s not an easy problem to solve.

“I’ve been in the electronics industry for 40 years, buying parts and making stuff, and I’ve never, ever, ever seen this. It’s unprecedented. It’s just absolutely crazy.”

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