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Why the chip shortage could last longer than advertised

“Out of stock”: This frustrating warning has appeared on a growing number of smartphone and laptop manufacturers’ websites over the past year, often resulting in long waiting lists for the public eager to put the money down. hand on new electronic devices.

At the heart of the problem: the global semiconductor shortage, which does not seem to be going away. Worse yet, it risks spilling over into the production of everyday products that, at first glance, have little in common with advanced technology. Think of children’s toys or microwaves.

In January, the semiconductor industry’s global turnover reached $ 40 billion, an increase of 13.2% from the same period in 2020. But although chipmakers continue steadfastly to produce components, the demand for electronic devices using semiconductors is reaching new heights and has already greatly exceeded the global supply of chips.

Pandemic = shortage

The pandemic played an important role in the emergence of this imbalance. As companies have sent their employees home to telecommute, PC and smartphone sales have exploded. At the same time, users have turned to new forms of chip-filled entertainment to pass the time during the lockdown months, ranging from gambling to cryptocurrency mining.

Add to that some geopolitical tensions between China and the United States, which has led Chinese tech companies to aggressively stockpile chips and chip-making equipment in anticipation of U.S. sanctions, and you can easily see why it doesn’t. is not easy to get your hands on a new smartphone these days.

PC makers, for example, have suffered from serious supply chain issues for almost a year. Although the PC industry saw record sales in 2020, analysts believe the numbers could have been even higher if the components had been readily available. Most gamers know that game consoles were also sold out in recent months. Sony acknowledged that it had not been able to meet demand for the PS5 and warned that constraints on semiconductor supply will last year round.

A widespread problem

Shortly after its release, Apple’s iPhone 12 Pro experienced up to three weeks of waiting. The BBC reports that Samsung may skip the launch of the next Galaxy Note smartphone. Xiaomi described a “very, very serious” situation with shortages affecting the entire industry. “At some point, consumers will be hit by the chip crisis,” Ondrej Burkacky, semiconductor manager at McKinsey, told . “The peak season for consumer electronics is the third and fourth quarters, and there could be shortages of several products during this time.”

In some cases, users might even see a price hike: Xiaomi, for example, warned that the company might have to pass the costs of the chip shortage on to consumers, but did not give more details. Companies, which tend to buy products on a larger scale, could be even more affected. A business doesn’t buy just one PC, but thousands at a time. This means that without careful planning, employee productivity and agility could be affected.

But for Glenn O’Donnell, research director at Forrester, there is yet another consequence of the shortage that should hold our full attention: that of the ripple effect that semiconductors could have in other markets. .

Daily life impacted?

Chips are present in many everyday products which, unlike some consumer electronics products, did not necessarily experience a boom in demand during the pandemic – but which will nonetheless be affected by global shortages.

“We will see a lot of consumer electronics, PCs and toys that have similar problems,” the latter told . Reports show that home appliance makers, for example, are struggling to keep up with demand, leaving consumers unable to purchase products powered even by simple processors, like microwaves, refrigerators. and washing machines.

Home appliance maker Electrolux recently described its supply chain as “strained” in many areas, especially for electronic components, which means the company has been unable to meet demand for all. its products last year. Electrolux predicted that the situation could deteriorate further in the coming months.

The automotive industry in turmoil

Glenn O’Donnell mentions smart home devices, such as video doorbells and smart toilets, which are all at risk of chip shortages in the future. According to the Washington Post, even an American dog washing company was deprived of the precious components that power its electronic shampoo dispensing booths.

But it is in the automotive industry that the crisis is most visible. In recent months, semiconductor producers have preferred to sell their silicon to higher-paying smartphone makers at the expense of automakers, resulting in a crisis in the vehicle supply chain. Earlier this year, General Motors temporarily closed its three North American factories due to shortages, while Ford warned investors that production slowdowns could affect its results.

In the UK, BMW has suspended production at its Mini factory in Oxford, once again citing a shortage of computer chips. This situation is beginning to worry steel service centers, especially in Europe where the automobile represents up to 70% of sales in some factories. A prolonged suspension of auto production on the continent could therefore have negative repercussions on the market.

The public authorities are getting organized

For Glenn O’Donnell, given the ubiquity of semiconductors, the entire economy is at risk of the side effects of a chip shortage. “There is a potential side effect, and we are currently studying it,” he says. “For example, agriculture has become a high-tech activity. If the farmer cannot get hold of new machines because they are not equipped with chips, his costs go up and this can have an impact on his prices. . It sounds far-fetched, but I think such a secondary economic impact is plausible. ”

The balance between supply and demand for semiconductors is unlikely to be restored in the coming months. The analyst even predicts that supply chains will be under pressure for another two years. Of course, chipmakers are scrambling to boost their capabilities. Intel recently said it would spend $ 20 billion to build two new chip factories in Arizona, while expanding its facilities in the United States and Europe; TSMC, for its part, has pledged $ 100 billion to increase its capacity.

Governments are also under pressure to act, and the Biden administration has vowed to take “strong action” to tackle the shortage. Last week, European Commissioner Thierry Breton also met TSMC and Intel to present the bloc’s strategy to increase European production of semiconductors, with the aim of achieving a global market share of 20%.

However, increasing production capacity takes time: building a new facility can take up to two years, for example. Ultimately, it is only when demand decreases that the pressure on chip supply will ease.

“Supply constraints are much more related to demand than to supply,” Daniel Goncalves, research director for Western Europe at IDC, told . “The supply of components is not the problem. The problem is that the demand is much higher than before, so the pace of production is much slower than it should be. That’s why it it’s very difficult to predict when this will end. ”

Horizon 2022

For PCs, for example, IDC predicts that shortages will continue throughout the year as consumers continue to order more devices; It is only once demand slows down in 2022 that production will be able to catch up. And as long as the global semiconductor shortage continues, consumers will often find little other option than to wait before receiving the products they have purchased.

Other options include buying second-hand or choosing from other suppliers, but one thing is for sure: stocks should not be expected to be full all the time. “Consumers may need to be prepared to accept different products or versions of products, or to wait to receive products,” Alan Priestley, Gartner vice president of research, told .

“Plan ahead, don’t expect to be able to buy or order something and get it right away, look for other suppliers and other products, be prepared to take higher or lower specification products if the one you you wanted is not available, ”he recommends.

Source: .com

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