SMALL TALK: Global shortage in semiconductors reaches alarming proportions
==============================================
Back in February, the U.S President signed an executive order mandating a 100-day review of critical product supply chains in the U.S., including semiconductors. Apparently, the move was necessitated by the disruption of supply chains during the pandemic, in an effort to secure domestic supply chains to address the vulnerabilities highlighted by the health emergency. The move was primarily aimed at addressing the shortage in chips, which has been steadily worsening since last year.
There is a historical perspective to the problem too. The U.S. now accounts for only about 12% of global semiconductor manufacturing capacity, down from 37% in 1990 as other countries have subsidized the growth of their chipmakers. The increased reliance of the U.S on other countries has made successive administrations uneasy, finally precipitating this action.
The shortage has been further exacerbated by the automotive industry, which is using more microchips than ever in car manufacturing. If you have ever ridden in a Tesla, it’s basically a pretty shell over a massive computer with countless chips & sensors on wheels. But it’s not just a problem for Tesla and other EV makers anymore.
“There is no sign of supply catching up, or demand decreasing, while prices are rising across the chain. This will cross over to people in the street. Expect cars to cost more, phones to cost more. This year’s iPhone is not going to be cheaper than last year.”
~ Neil Campling, Media & Tech Analyst
As reported by Bloomberg, the global shortage of semiconductors is starting to have serious effects for many automakers, with Honda Motor Co. saying it will suspend production at some U.S. plants while Toyota Motor Corp. has already scaled back production due to the lack of chips. The American automakers also sounded the alarm.
General Motors announcing the global chip shortage could shave up to $2 billion from 2021 profits and extend production cuts at three North American plants. While Ford said the same could lead to a 10% to 20% loss in the first-quarter production, resulting in a potential hit to operating earnings of $1 billion to $2.5 billion. German automaker Volkswagen AG said it has lost production of 100,000 cars worldwide.
However, the problem is not restricted to automakers alone. Sony, which along with other console makers has struggled with stock shortages over the last year, said it might not hit sales targets for the new PS5 this year because of the semiconductor supply issue. Microsoft’s Xbox has said it forecasts supply issues continuing at least until the second half of the year.
But the biggest casualty to this chip supply disruption has been Samsung — the second-largest buyer (after Apple) & second-largest producer of chips (after Intel) for its products. Last week, the company announced that it may have to postpone the launch of its high-end smartphone due to the shortage. This is ironic coming from a company that sells $56 billion of semiconductors to others and consumes $36 billion of them itself.
On the bright side, Intel — the biggest chip producer in the World, is planning a major manufacturing expansion, which will start with a $20 billion investment in two new chip factories in Arizona (U.S). Intel also said it will act as a manufacturing partner for chip companies that focus on semiconductor design but can’t make the chips themselves.
As global demand for semiconductors continues to soar, chip production that is split between the U.S & Asia is proving to be yet another source of tensions in foreign policy powerplay between countries — primarily China & America. According to the
Wall Street Journal, Taiwan might end up being the most contentious issue between the two nations due to its semiconductor industry that is of crucial economic interest to the U.S.
Faisal Khan