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Broadcom is one of the world's top suppliers of semiconductor chips, which form the brains of everything from smartphones to cars to game consoles. Its current backlog of orders is at least eight months long.

Broadcom's inventory problem is the latest sign that a wider global chip shortage plagues the supply chain. The chaos in the semiconductor material supply chain caused by the pandemic has led to an initial backlog in mid-2020. Then, the demand for cars was stronger than expected, coupled with the seasonal surge in smartphone sales, resulting in demand much higher than supply.

In the earnings call on March 4, Broadcom CEO Tan Hock Eng said that the semiconductor backlog in the first quarter of this year was "quite significant." "Our customer [who] is willing to book and deliver these products for the remainder of 2021," he said.

The backlog shows that manufacturers need chips very much. From Chennai, India to Ontario, Canada, automakers are waiting for the shipment of key semiconductors that control airbags, navigation systems, and many other components in an increasing number of computerized cars. At the same time, Broadcom's customers have been locking in non-refundable orders, which will keep their factories busy until November.

"As we extend the delivery time, from three months to six months to eight months, they only need to book what they need eight months in advance," Eng said. "You only do this if you truly believe that you need the product to support your business."

Semiconductors are so important that some buyers may accumulate additional chips to exacerbate shortages, reflecting their fear that the crisis will drag on for a long time. "We have seen customers speed up bookings for early delivery and are trying to create a buffer and create the imbalance between supply and demand that you all hear," Eng said.

But Eng seems to indicate that Broadcom has been working behind the scenes to appease frightened customers and persuade them not to hoard chips. "It's all about being able to tell your customers... to act in a rational way," Eng said. "We have a reasonable process to ensure that our customers get the product-maybe in time, but they do get the product when they need it."

Financial analysts spend most of the time on the phone asking how Broadcom is prepared to deal with the large number of orders it currently faces. The executive did his best to combat any perception of chaos. "This is not panic mode," Eng said at the end of the call. "This is a very organized and reasonable process, and we believe that when it ends, it still shows real potential demand. This is how we want to report."

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