The semiconductor industry might have to rethink its use of just-in-time supply chains because of the ongoing chip shortage, the CEO of chip manufacturing equipment supplier Applied Materials has said.

The warning came amid record demand from chipmakers for Applied Materials’ machinery, helping to increase second-quarter revenues by 41% year on year to $5.58bn.

The Silicon Valley headquartered company provides engineering solutions for modifying materials at “atomic levels and on an industrial scale”. It counts major chipmakers such as Taiwan Semiconductor Manufacturing Company (TSMC) and Intel among its customers.

But the semiconductor shortage plaguing the automotive, consumer tech and enterprise technology sectors has exposed a weakness in the just-in-time manufacturing process that has been used for decades, Applied Materials CEO and founder Gary Dickerson said.

“Current capacity shortfalls and some areas of the market show the highly efficient just in time supply chains that have served the semiconductor industry well for the past two decades may not be the most effective strategy going forward,” Dickerson told analysts in a conference call on Thursday.

Dickerson’s comments echo those made by Nvidia CEO Jensen Huang, who said last month that the automotive sector’s supply chain needs simplifying.

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By GlobalData

“Covid exposed a weakness in the supply chain of the automotive industry, which has too many components that go into cars,” he said.

Applied Materials is set to continue benefiting from the surge in demand for silicon as chipmakers buy more equipment to expand manufacturing capacity. TSMC, the world’s largest chip manufacturer, is investing $100bn over the next three years to increase production at its fabs. This is likely to mean extra business for vendors such as Applied Materials, which raised revenue forecasts for the current quarter to around $5.92bn.

Dickerson added: “We are confident in our ability to outperform our markets as large, secular trends create sustainable demand for semiconductors and our leadership in materials engineering becomes increasingly critical to deliver new chip technologies.”

Soaring demand and shrinking supply in semiconductors because of Covid-19, severe weather and factory fires has caused significant disruption to supply chains that depend on microprocessors. This week Cisco warned that the chip shortage threatens its profit margins this current quarter.