- From delayed car deliveries to more expensive smartphones, businesses and consumers around the world are facing the fallout from an unprecedented shortage in semiconductor microchips
- These supplies have been strained by a recent spike in car sales, as well as consumers who’ve stocked up on laptops and gaming consoles
- The semiconductor shortage could impact the production of almost 1.3 million light vehicles globally in the first quarter alone
- U.S. semiconductor companies account for 47 per cent of global chip sales, but only 12 per cent of manufacturing actually occurs in the United States
- But while businesses are struggling now, the flip side is that chip suppliers could see a boost in the relatively short term
From delayed car deliveries to more expensive smartphones, businesses and consumers around the world are facing the fallout from an unprecedented shortage in semiconductor microchips.
It stems from the convergence of several factors as car makers — who shut down factories last year when the COVID-19 pandemic hit — compete with the expansive consumer electronics sector for chip supplies.
These supplies have been strained by a recent spike in car sales, as well as consumers who’ve stocked up on laptops and gaming consoles. Various sanctions against Chinese tech companies have also exacerbated the problem, driving the shortage beyond just the automotive industry and into other sectors, including household appliances and consumer electronics.
Cars have become increasingly dependent on chips for a range of features, including computer-managed engines for better fuel economy and driver-assistance technology, such as emergency braking.
But the crisis has forced many manufacturers to cut production of less profitable vehicles. General Motors and Ford are among some of the biggest names, joining others like Volkswagen, Subaru, Toyota and Nissan who have said they would scale down manufacturing efforts.
According to data firm IHS Markit, the semiconductor shortage could impact the production of almost 1.3 million light vehicles globally in the first quarter alone.
IHS also noted that a fire at a Renesas Electronics-owned chip-making factory in Japan — which accounts for 30 per cent of global production for microcontroller units used in cars — has added to the issue, while severe winter weather in Texas forced the temporary shutdown of factories owned by Samsung Electronics, NXP Semiconductors and Infineon. NXP and Infineon are both major automotive chip suppliers.
At the core of the problem is a massive under-investment in eight-inch chip manufacturing plants mostly owned by Asian firms, which means they’ve struggled to step-up production as demand for 5G phones and laptops exceeded expectations.
The majority of chip production takes place in Asia, where major manufacturers like Taiwan Semiconductor Manufacturing and Samsung handle production for hundreds of different chip companies.
U.S. semiconductor companies account for 47 per cent of global chip sales, but only 12 per cent of manufacturing actually occurs in the United States.
As a result, U.S. President Joe Biden has sought US$37 billion (roughly A$48.77 billion) to supercharge North American chip manufacturing. However, these factories cost tens of billions of dollars to build and expanding their capacity can take up to a year for testing and qualifying complex tools.
There are currently four new proposed factories: two by Intel and one by Taiwan Semiconductor Manufacturing in Arizona and another by Samsung in Texas.
China has also offered a myriad of subsidies to the chip industry as it tries to reduce its dependence on Western technology.
What does this mean for the future of the industry? Good things, apparently. While businesses are struggling now, the flip side is that chip suppliers could see a boost in the relatively short term.
According to Janardan Menon, an analyst at Liberum Capital, most semiconductor manufacturers should report strong results for the first quarter and give promising guidance for the second.
“This is all great news for the semiconductor vendor,” he said.
“This kind of tightness — of capacity utilisation, rising prices, very, very strong demand — invariably means that their results are very, very strong.”