Pacemaker, Ultrasound Companies Seek Priority Amid Chip Shortage

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Medical device makers shed light on life-saving products to secure supplies: ‘Every single chip you give me gives a suffocating person the gift of breath’

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“Nobody wants to be someone who shuts down critical medical equipment in the middle of a Covid,” said Mike Arena, vice president of operations for Fujifilm Sonosite, a portable ultrasound machine maker. “When we meet with the CEO or senior VP they want to help a lot.”

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A global supply crisis for computer chips, increased demand for electronics as the pandemic expanded domestic operations, disrupted car production and pushed up the prices of laptops and printers. Medical device manufacturers are also feeling the pinch. In a recent survey of medical technology companies by Deloitte, every respondent reported supply issues. The most commonly cited problems were delays, deductions and cancellations.

“Week-to-week we are going through different shortages,” Mr. Arena said, adding that his company recently paid a broker $65, which usually costs $1.49 because it sold 3,000 pieces. This order was in short supply.

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For Fujifilm Sonosite, the US-based subsidiary of the Japanese tech giant, chip shortages have been fueled by increased demand for its products amid the proliferation of Delta variants. Portable ultrasound machines are used in emergency rooms and intensive care units to diagnose respiratory diseases. “Right now we have more demand for materials than we can satisfy,” Mr. Arena said.

Medical device manufacturers are desirable customers for chip suppliers. They are resilient during recessions, and because their products are heavily regulated, they are not updated as often as consumer electronics, which means they generate reliable business. Medical device manufacturers also usually pay a little more than companies in other sectors because of the quality they require.

But for all those forces, the medical technology sector is small compared to the vast automotive and consumer electronics industries. In 2020, total medical semiconductor revenue was $5 billion, accounting for just 1.1% of the overall chip market, according to technology data company Omdia.

“We’re competing against companies that are making hundreds of millions of dollars in revenue,” said Mr Arena of Fujifilm Sonosite. “Here we are individuals who represent $50,000-$100,000 a year. It’s very hard to get on their radar.”

To secure supplies, medical device manufacturers are appealing to suppliers’ high duty spirit. When a supplier recently told Fujifilm Sonosite that an order for 9,000 chips would arrive more than 60 days later than planned, Mr Arena used LinkedIn to quickly track down the chief executive. Guessing his email address, he wrote to the CEO to tell him the chips were for medical devices. In response, the supplier reallocated chips from other customers, and 9,000 semiconductors arrived in three separate shipments over the following two weeks.

“I’m asking them to take some components from their high-revenue customers and give some to me so you can do something good for the world,” Mr. Arena said. He said it helps that the number of chips he is asking for will hardly dent the auto maker’s allocation.

Boston Scientific Corporation

One of the world’s largest medical technology companies has also persuaded suppliers to prioritize on the basis that its products improve people’s health, according to Brad Sorenson, senior vice president of supply chain.

“One of the biggest levers we have is that relationship,” he said. “What we do for patients and to make sure they understand it.”

That message has helped Boston Scientific secure supplies as typical lead times for components range from three to 15 months. The company has also roped in its own manufacturing engineers from some of the major suppliers to speed up production and keep lines of communication open. So far it has kept up with demand for its products, which include pacemakers and brain implants to treat Parkinson’s disease, but only reasonable. “There are times when we are flying closer to the sun than we would like to,” Mr Sorenson said.

ResMed Chief Executive Mick Farrell Inc.,

Which is using the same strategy with suppliers of ventilators and other breathing aids. “I lead with the human element,” he said. “People are hearing this a lot.”

His pitch: “Every single chip you give me gives a suffocating person the gift of breath.” That logic helped ResMed stay at the top of the order until recently, when a massive recall by its top competitor, Royal Philips NV, fueled a surge in demand for devices made to treat sleep apnea.

Mr. Farrell said that under normal circumstances the company would be able to meet that new demand within six to nine months. With a supply crunch, he expects ResMade’s production to be disrupted by the end of spring next year at the earliest.

One chip maker that has publicly backed medical device makers is Germany’s Infineon Technologies. AG

. Last year it provided millions of chips to help ResMed ramp up ventilator production at the start of the pandemic. A spokesman said Infineon has given priority to medical device manufacturers in some cases when supplies are tight.

According to Mike Schiller, senior director of supply chain at the Association for Health Care Resources and Materials Management, an industry group, some hospitals are facing longer delays due to semiconductor shortages. He said some members have reported delays of months for new CT scanners, defibrillators and telemetry monitors, machines that track patients’ vital signs.

But efforts to lure suppliers of medical device manufacturers seem to have prevented widespread shortages. Ed Hiscock, senior vice president of supply chain management at Trinity Health, which operates 90 hospitals in 22 states, said his team has been on “high alert” for the past six months for shortages of thousands of items containing semiconductors, but none It is not near yet it has come true.

“We’re in a good position,” said Boston Scientific’s Mr. Sorenson. “But the results here can be really important.”

Denise Roland at [email protected]


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