Chip shortages will continue to hit different industries well into 2022
The situation will cause factories to stop and more costs. There will be manufacturers of technological devices that will launch fewer products, sometimes with reduced benefits and higher prices for the final consumer
The semiconductor shortage has not only become a real nightmare for the automotive sector – last Thursday the management of the Stellantis plant (PSA and Fiat Chrysler) in Spain raised a 60-day ERTE for 3,749 workers for the lack of this component – but for the entire technology industry, highly affected by the shortage. There is no longer a mobile manufacturer that speaks that does not warn of the risk of this situation. Samsung said a few days ago that the lack of chips could affect the production of some ranges of its mobiles (including the Note) and Xiaomi warned last Wednesday that the situation is causing an increase in costs. Also in the Harvard Business Review they mention implications on medical equipment.
The situation has become so dramatic that there is already talk of chipageddon . And far from expecting a quick solution, reports suggest that it will not be resolved until the end of the year or even well into 2022. “We expect restrictions to be only partially eased in the second half of 2021, but it will last until 2022 ”Says a Bank of America study. A chipmaker recently told the Wall Street Journal that the backlog of orders is so great that it takes up to 40 weeks to fulfill any order a carmaker places now.
But, as Cristian Castillo, lecturer in Economics and Business Studies at the UOC, warns, the automotive industry represents only 10% of this crisis. “It is only the tip of the iceberg, because the lack of semiconductors is affecting the manufacture of mobiles, computers, tablets, washing machines, refrigerators, televisions … All digital products carry chips, so the impact is capital”, he adds.
Although the semiconductor sector has always been turbulent and the companies that are dedicated to it are used to circumstances of this type between technological cycles, this time everything has happened very quickly. “In a matter of months we have gone from having stock to everything being in stock, especially in Asia,” continues Castillo, who attributes the shortage to two reasons: the coronavirus, which has caused unprecedented changes in the demand for this component vital, and the technological war between the US and China.
“With the pandemic, governments imposed lockdowns that slowed mobility and demand for vehicles, prompting car manufacturers to cut back on chip orders. But the health crisis boosted teleworking and remote education and leisure in parallel, which triggered the demand for technological devices. This situation led chipmakers to change their production lines and allocate the chips to other products. And what happened later is that as the confinement restrictions were lifted, car manufacturing was reactivated, without the demand for consumer electronics products ceasing to grow and we ran out of stock “, says the professor.
Castillo believes that the pandemic, which also caused challenges with logistics in semiconductor factories of companies such as TSMC or Samsung due to the quarantine, has been the catalyst for the shortage of chips to have occurred so immediately, but ensures that the The problem has been dragging on for years. “Donald Trump’s Clean Net plan, which tries at all costs to block Chinese technology companies, has been decisive, since China, which is not the main manufacturer of semiconductors but is the great factory of consumer electronics devices and has a large purchasing power, accelerated its strategy of monopolizing these semiconductors. In 2018 alone, China’s chip imports were $ 312 billion, ”he highlights.
This expert warns that in the semiconductor industry everything is interrelated and cannot be drastically broken with China, because the effect is global. “It is enough to see that SMIC, the main Chinese semiconductor manufacturer, has Qualcomm as its second major customer and API Materials, both from the United States, as the main supplier. In addition, a large part of the raw material to manufacture semiconductors comes from mines in China and that gives it enormous power, despite the fact that the country does not have semiconductor technology as advanced as other countries ”.
Norberto Mateos, CEO of Intel Spain, and Ignacio Cobisa, research analyst at IDC, point to another reason for the crisis: the supply of chip production has not increased at the same rate as demand, boosted by the continuous process of digitization, ” and one of the problems that the sector faces to do so is the shortage of some components that are part of the manufacturing chain, such as the substrate, a material that the chips use to connect to the plates ”, adds Mateos.
The effects of this semiconductor shortage are manifold. Many companies are seeing how their production chains are paralyzed or cannot manufacture the amount of products that their customers ask for, so the consumer is already beginning to notice less product availability, reduced benefits as the devices cannot include some semiconductors and prices Taller.
“We already saw how Apple had to delay the release of the iPad Pro and its latest iPhone, and also fans of the PS5 and the latest Xbox have been affected by the shortage of consoles,” recalls Castillo, who assures that those companies that have stock of semiconductors will be the ones with the power. “They will be able to sell to whoever they want and at the price they want, and many companies not to be harmed and to serve their customers will buy at the price that they set and that will end up affecting the consumer’s pocket.”
The solution is not easy in the short term and will weigh down the already damaged economy, since as Mateos points out, more factories of different components and microchips are needed, “and opening one of these factories with the latest technology costs about 10 billion dollars and takes two to three years from the start of its construction until it is operational “. Others take a minimum of 18 months. “In addition, a know-how is needed ,” he remarks, making it clear that entry barriers are considerable.
For Castillo, the solution is long-term and happens that there is no oligopoly that exists today in the semiconductor industry. “The top three companies by revenue are Intel, Samsung and TSMC, and they have enormous power in this market. That is why it is necessary for there to be more alternatives and availability of these components, and it is convenient for Europe to have a semiconductor manufacturer to be more independent from the US and China. Europe also has a card that may allow it to exercise some power in the current battle. Only one company in the world, and it is Dutch, ASML Holding, supplies an extreme ultraviolet lithography machine that is necessary to manufacture state-of-the-art semiconductors ”.
As during the first two months after the Covid-19 pandemic, the struggle of different countries to obtain essential medical equipment caused many voices to call for the need to manufacture them locally, the current shortage of chips It is leading many governments to see the need to bring more semiconductor manufacturing to western markets, as it is an essential component for the economy and security. There are areas like 5G, artificial intelligence and cybersecurity that require the most advanced chips.
Intel last week unveiled plans to significantly increase its semiconductor factories and announced a $ 20 billion investment in two factories in Arizona (USA). The firm said that they will manufacture practically all their chips in-house, and announced the creation of a new business line, Intel Foundry Services, which will be dedicated to manufacturing semiconductors for third parties, and will do so in the US and Europe. “The EU has presented its 20-30 strategy in which it includes that it wants 20% of the latest generation chips manufactured in the world to be made in Europe, and we have picked up the glove. Also that of the United States, since both seek to be more independent from Asia-Pacific, where today a good part of the world’s chips are manufactured, ”says Norberto Mateos.
Intel has not yet specified the exact number of factories that it will open to serve third-party manufacturing in Europe or where they will be located (they will say it throughout this year) but it does warn of how strategic it is for the governments of both regions to have manufacturing local “because it is a strategic product. And we are already seeing what is happening now with another strategic product, vaccines, which have access to them before the countries where they are manufactured ”, says Norberto Mateos. The new division has a business potential of up to $ 100 billion.
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