The global chip supply shortage has snowballed into a major problem for companies, cutting across sectors and necessitating concerted efforts from governments and industry.
The Miscalculations, Politics Behind Chip Shortage: The COVID-19 pandemic deceived foundry partners and packaging manufacturers into believing demand would suffer.
Even ahead of the pandemic, these companies had trimmed production in 2018 and 2019 in response to slowing demand in most regions.
At the same time, consumers accelerated their purchases of gadgets, devices and accessories to serve them in remote work and remote study environments during the pandemic.
Demand for in-home entertainment products has also swelled during the pandemic. These led to a strong increase in the demand for chips used in smartphones, consumer electronics, gaming systems and the like.
While automakers scaled down production in response to the pandemic, gradual economic reopenings led to a surge in demand for vehicles beginning in late 2020.
Chip suppliers, which trimmed down chip production for automobiles and in turn stepped up supplies to the consumer electronics sector, are now pressured from all quarters.
The sanctions imposed by the previous Trump administration on Chinese companies have also served to exacerbate the supply crunch.
A fire that occurred at a plant of Japanese chip manufacturer Renesas in late March left capacity further constrained.
Renesas is the main chip supplier to the automobile industry and particularly to Japanese companies.
The company hinted that it would take at least a month to restart operations at the damaged site.
Tough Projections For Automakers: Chipmakers are squeezed for supply and in most cases are not able to meet commitments. Apart from the production impact on end users, the chip crunch has also inflated component prices.
Detroit automakers have responded to the crisis with production cuts. General Motors Company GM said last week it has halted production at several North American factories and extended shutdowns at other plants.
Ford Motor Company F said in mid-March that the semiconductor shortage, along with part shortages created by the central U.S. winter storm in February, have forced it to build and hold vehicles for a number of weeks before components can be made available.
The company also opted to cancel shifts and shutter plants to navigate through the crisis.
Stellantis N.V. STLA, formerly known as Fiat Chrysler, announced the idling of four plants in North America.
Automakers from the other regions such as Volkswagen AG VWAGY, Daimler AG DMLRY, Nissan Motor Co., Ltd. NSANY, Hyundai Motor Company HYMTF and Honda Motor Co., Ltd. HMC have all gone public regarding the impact of chip shortages on vehicle production.
An exception has been Toyota Motor Corporation TM, which has stockpiled enough supplies.
Pure play EV manufacturers weren't spared either. After emphasizing in early March that it has adequate chip supplies, Chinese startup NIO Inc. NIO was forced to concede a production disruption due to the chip crunch three weeks later.
Some automakers, according to S&P, will likely face production shortfalls of up to 20% in the first half of this year.
This could result in a net loss of production of up to 3 million units, or roughly 3%-5% of global production in 2021, the firm said.
The lead time for the industry to obtain chips has lengthened by up to two months from the usual norm of six to nine months, S&P said.
Consumer Electronics Manufacturers Feel The Pinch: Apple Inc. AAPL supplier Hon Hai Precision Industry Co., Ltd. HNHPF warned in late March that about 10% of its shipments will be hurt by chip shortages.
The company said home products that have been sought after by consumers are likely to be worst hit.
Chinese smartphone maker Xiaomi Corporation XIACF said the shortage of chips will send prices of its products higher.
Word is going around that the predicament is hurting production of Apple's Macbooks and iPads, although the tech giant hasn't confirmed anything.
South Korean consumer electronics giant Samsung said it is considering delaying the launch of a new Galaxy Note this year. The company also said the issue will hurt operations in the second quarter.
Chipmaker QUALCOMM Incorporated QCOM is also finding it hard to meet demand amid the shortage, as there has been scarcity of some subcomponents that go into its chips. It should be noted that Qualcomm's chips power most smartphones.
Sony Group Corporation SONY recently indicated that production bottlenecks will hamper supply of its new gaming console in 2021.
Broadband internet and cable TV companies are also facing delays in receiving network switches, routers and servers.
The adversity is expected to create winners as well.
Semiconductor equipment makers and market-leading companies that have the better bargaining power to secure chips are likely to gain from the adversity, according to Pimco.
Is There A Silver Lining? The discussion point now is quantifying the impact and how long the crisis will last.
"The chip shortage could dissipate gradually over 2H21 as foundries ramp up capacity at existing plants," Fitch said in a recent release.
The firm expects foundries to invest in new fabrication plants to cope with higher demand over the medium term.
Intel Corporation INTC, which is following a hybrid production model, said it will strive to manufacture and supply chips for automakers within six to nine months.
The Biden administration has shown interest in resolving the issue. President Joe Biden met with the CEOs of technology and automobile companies as well as global foundries earlier this week to discuss measures to alleviate the problem.
He had previously committed to a $50-billion investment for chip R&D as part of the government's $2-trillion infrastructure plan.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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