The nights are not so difficult now.

The dread and apprehension are gone, as are the paralyzing bouts of sleep anxiety. Also missing are the unpleasant thoughts and illusory presumptions that often dawned after sunset.

Replacing all that misery is serenity, certitude, and a bit of contentment—sensibilities that help Lauren sleep without fear these days after a harrowing year-plus interruption in her sleep apnea treatment.

“Life or death,” Lauren told NBC-TV affiliate WESH (Daytona Beach, Fla.) in June. “I could die without it.”

Lauren survived (physically, at least) without her nightly infusion of pressurized air, but the frustrating quandary in which the Orlando, Fla., resident found herself is one of the many hallmarks of pandemic life, spawned by a perfect storm of product recalls, sole-source dependency, and continuing supply chain troubles.

That storm—swirling for nearly 18 months—has left quite a swath of victims and damage in its wake.

Among the victims is Winter Springs, Fla., resident Steve Dross, who’s been waiting eight months (and counting) for a CPAP (continuous positive airway pressure) machine. “I think it’s ridiculous,” Dross griped to WESH. “In this day and age, you shouldn’t have to wait a year for a CPAP machine.”

Indeed, a months-long wait for a CPAP machine is preposterous. But it’s become typical in this day and age of COVID-19-induced material and component shortages, intermittent lockdowns, production slowdowns, escalating shipping costs, grandiose geopolitical aspirations, and faulty polyurethane foam.

CPAP machines have joined an expansive list of medical devices facing critical shortages from the world’s gnarled supply chain. The assistive breathing apparatuses are functional only with computer chips, a component that has become as hard to find as lumber and silicone rubber amid the Great Supply Chain Disruption.

The chip’s descent into the supply chain void was neither swift nor straightforward. Its tumble began with the East Asian trade wars of the late 2010s (U.S.-China, 2018; Japan-Korea, 2019), which increased lead times, inflated pricing, and tightened constraints on raw materials. The U.S.-China dispute triggered semiconductor wafer hoarding in the Middle Kingdom while the Japan-Korea tussle sent manufacturers scrambling for chipmaking chemicals. Compounding the growing shortage were COVID-19 lockdowns and production interruptions from both extreme weather and factory fires.

A colossal miscalculation of anticipated demand, however, sealed the chip supply’s ultimate fate: Major buyers—fearing a severe global recession—scaled back their orders during the pandemic’s early days, leading to a manufacturing slowdown. But the recession never materialized; economic growth actually mushroomed after COVID-19’s initial shocks wore off, leaving the industry woefully unprepared to meet the planet’s surging appetite for telecommunications technology and other commodities.

“Demand for chips is high. It is getting higher,” U.S. Commerce Secretary Gina Raimondo said in January. “Five days of inventory. No room for error. That tells you how fragile this supply chain is. We aren’t even close to being out of the woods. The semiconductor supply chain is very fragile and it’s going to remain that way until we can increase chip manufacturing.”

Increasing manufacturing won’t be easy, though. Adding chip-making capacity is time-consuming and expensive (it can take up to two years and cost billions of dollars). The U.S. government is offering some financial help, providing $52 billion in funding to stateside semiconductor manufacturers, but the money is unlikely to immediately impact supply. Similarly, new factories planned by Intel, Samsung Electronics, and Texas Instruments are not expected to be operational before mid-2024 or 2025 at the earliest.

Increasing manufacturing at existing semiconductor plants is no less complicated. Russia’s war with Ukraine has hobbled sourcing of chip-making ingredients like krypton and neon, and COVID -19 outbreaks in Southeast Asia have stymied the industry’s lead frames stockpile.

The sourcing issues, production disruptions, skyrocketing demand, and international turmoil have caused lead times and chip prices to balloon, with lead times now stretching upwards of 40-50 weeks and costs running at least 10% to 20% above pre-pandemic levels.

“There’s no easy way to get around a short supply of semiconductors and rising costs when every company is in the same boat,” Jabil Global Procurement Vice President Scott Graham wrote in a blog earlier this year. “Having already taken blows from 2021 and 2022’s uncertainties (so far), the markets that rely most heavily on chips…are braced for more unknowns.”

And ugly truths. The chip shortage and other vexing supply chain disruptions have significantly eroded corporate profits this year, particularly in industries that depend on integrated circuits for digitizing components. The automotive industry has sustained the largest losses (an estimated $210 billion in 2021), but the consumer electronics, LED/lighting, power, and medtech sectors have all been affected as well.

While medtech’s financial suffering pales in comparison to automotive’s overall deficit, supply-related challenges have had a far graver impact on its end users, as evidenced by the long waits for life-saving CPAP machines.

Those waits basically resulted from too few chips and too much demand, courtesy of the global shortage and Royal Philips’ Class I recall of more than 5.5 million sleep apnea and ventilator devices in June 2021. Both challenges have made it difficult, if not impossible, to meet CPAP machine demand in a timely manner.

San Diego-based ResMed Inc. spent months scouring its supply chain for available stock, to no avail. The company eventually increased production in Q4 (ended June 30) by redesigning certain AirSense 10 CPAP and APAP machines without cellular communication chips. Rebranded as card-to-cloud devices, the revamped products lack some remote features and substitute automatic data transmission with an SD card-assisted manual upload.

“We’ve been able to mitigate some of the electronic component bottlenecks with the launch of our redesigned card-to-cloud AirSense 10 devices…” ResMed CEO Mick Farrell told investors during a Q4 earnings call in August.

“During the last month of the quarter, during June, we were able to allocate more products to our customers than in recent months and in recent quarters. The global supply chain environment remains very much in flux across multiple industries. We are starting to see indications that the macro environment is improving, particularly semiconductor availability. We’re not out of the woods yet, but the compass is pointing to true north and we are on top of it.”

ResMed’s production compass may indicate true north, but the firm’s supply chain struggles have prevented its fiscal magnetometer from achieving a precise directional match. A “very significant double-digit de-commit” from a semiconductor supplier cut ResMed’s anticipated recall windfall by $100 million; during a Q3 earnings call, Farrell adjusted the gain downward from $300 million-$350 million to $200 million-$250 million.

“…our supply chain allowed us to sort of take two steps forward and two steps back versus two steps forward and one step back,” Farrell said in April. “That didn’t allow us to achieve that extra $100 million of incremental revenue we thought we would achieve through fiscal ‘22 for the first half. So that’s going to be tougher and it moves things a little bit further back.”

ResMed was not alone on the two-step dance floor, though. Most major medical device firms boot-scooted their way to financial disappointment from this year’s supply chain troubles.

Medtronic, for example, posted an 8% sales loss in its first fiscal quarter (2023), Philips recorded a $53 million deficit in its second quarter (2022), and GE Healthcare failed to improve its year-over-year Q2 revenue despite a $160 million improvement over the previous three months. Baxter International, meanwhile, lowered its 2022 sales and earnings guidance after a subpar second-quarter performance. The company cut its projected sales growth from 23%-24% on a reported basis and 25%-26% on a constant currency basis to the high teens (reported) and the mid-20s (constant currency). Adjusted EPS fell to $3.60-$3.70 from $4.12-$4.20.

“We have been severely impacted by a lot of factors—the worldwide stress on the supply chain, the inability of our suppliers to supply—and that shows up all over the operations of our company,” Baxter chief financial officer Jay Saccaro told investors during a Q2 earnings call in July. “We’re continuing to navigate a dynamic and ever-changing macro environment. This near-term volatility has created certain challenges for our business, and led us to lowering our full-year outlook. It’s an incredibly volatile dynamic that we’re experiencing as we look at our supplier base.”

That volatility halved Smith+Nephew’s cash flow in the first six months of 2022 (compared to last year), and trimmed its trading profit margin by 0.4%. Although the latter reduction was minor, it nevertheless spawned skepticism among analysts over the comp- any’s ability to achieve its 21% trading profit margin in 2024.

Market instability also decimated NuVasive Inc.’s Q2 2022 net income in spite of a 5.3% sales hike. The company lost $893,000, or 2 cents per share, on $310.5 million in proceeds, compared with $1.79 million in profit, or 3 cents per share, on $294.8 million in Q2 2021 revenue. The loss is not expected to affect sales this year —a 6%-8% growth rate is still within range—but the firm has lowered its diluted EPS to 95 cents-$1.25 from $1.05-$1.35.

For some medtech companies, however, the fallout from prolonged supply chain chaos has been far less tangible. The instability has impacted on-time delivery service at Intuitive Surgical Inc. and delayed product shipments at Stryker Corp.

“I think the persistent thing we are seeing is because the supply chain has been so spotty,” Stryker chief financial officer Glenn Boehnlein said in July, “we are just—feeling inefficiencies in our processes and how we manage our manufacturing across the globe with…inconsistencies of when we will have raw materials available for teams to work on.”

Those raw materials could be available sooner rather than later, actually. Improvements in resin and semiconductor bottlenecks over the summer have given device executives reason to hope for a near-term end to the world’s supply chain drama.

“I am certainly hopeful that we see easing of electromechanical components, along with the normalization of freight lanes and freight times and the impact,” Baxter’s Saccaro said. “I’m optimistic that all of those things will occur…this situation that we’re in, I know it will resolve. I just can’t answer at this point how quickly that will occur.”

Unfortunately, nobody can.

Article source: MPO