With the outbreak of the COVID-19, consumers are increasingly buying computers and other electronics to cope with the new conditions. However, this excessive demand has led to a significant chip shortage, thus threatening global car production. But let's take a closer look at how the automotive and electronics industries are affected.
On February 9, General Motors (GM) announced that it would extend production cuts in the U.S., Canada and Mexico until mid-March. In addition, other major automakers, including Ford, Honda and Fiat Chrysler, have slowed vehicle production due to chip shortages.
General Motors isn't the only one struggling to get enough semiconductors to build its products. AMD and Qualcomm ,which sell chips to most of the top electronics companies, have reported shortages in recent weeks. On the electronics front, Sony is blaming chip shortages for making it so difficult for consumers to get their hands on the PlayStation 5.
Chip supply is expected to remain tight in both the automotive and electronics industries in the coming months as demand remains higher than ever. The Semiconductor Industries Association said in December that global chip sales will grow 8.4% in 2021, from a total of $433 billion in 2020.
Semiconductors are in short supply due to strong demand for electronics, which has shifted business models in the semiconductor world that have created a barrier between outsourcing chip factories and the fallout from the US- China that began under the presidency of Donald Trump.
As we mentioned earlier, the global health crisis has significantly increased demand for consumer electronics.
Initially, consumers bought computers, monitors and other tools for remote work and distance learning. Then, the purchase of gadgets such as game consoles, televisions, smartphones and tablets increased. It is worth mentioning that PC sales increased by 4.8% in 2020, with an increase of more than 10% during the holiday season, according to data from Gartner.
All of these devices include a ton of chips – not just the central processor that can cost tens or hundreds of dollars, but also less expensive small chips for controlling the display, power management, or 5G modem functionality.
Electronics giants that have reported record sales say they could have made even more profits if there had been more supply. Apple, which recently reported a $111 billion profit, told analysts it didn’t have enough supply of its new iPhones to meet demand. The company’s CEO, Tim Cook, told Reuters that “semiconductors are tight.”
Also, AMD CEO Lisa Su, whose chip is the processor at the heart of Sony and Microsoft, said last month that she expects shortages in at least the first half of the year. "The industry needs to increase overall capacity levels," Su said.
The shortage highlights a structural shift in the semiconductor industry. Many of the top semiconductor companies are now “fabless,” meaning they only design the chips and the technology on them.
However, the shortage doesn't just exist in the fastest chips, but in all of them.
In addition, cars now include many tiny chips, many of which perform functions such as power management. Cars also use many microcontrollers, which can control traditional car functions such as power steering, or be the brains at the heart of an infotainment system. Car manufacturers also commonly use “just-in-time” production, which means they avoid stocking extra parts.
“If the chip that powers the dashboard or automatic braking in the car is delayed, then the rest of the vehicle is delayed,” Bryce Johnstone, director of automotive parts marketing at chip designer Imagination Technologies, told CNBC.
The US-China trade war
Last year, the US imposed restrictions on China's Semiconductor Manufacturing International (SMIC), preventing it from acquiring advanced chip-making tools and making it much harder for it to sell its finished products to US companies. Customers had to shift their orders to competitors such as TSMC.
SMIC executives acknowledged that the US move prevented it from using its full potential, saying geopolitical factors would prevent it from taking advantage of the “rare opportunity of this year’s market,” referring to the chip shortage.
Some companies also decided to stockpile key chips ahead of the U.S. deadline, reducing production capacity last year. For example, Huawei stockpiled critical radio chips ahead of the sanctions, Bloomberg reported.
The stockpiling has also raised concerns about supply as the COVID-19 pandemic has hit the world. SK Hynix, a major memory chip maker, said last July that it had seen a surge in sales due to “increasing concerns about the overall IT supply chain.”.
It is noteworthy that companies that have stockpiled chips are now reaping the benefits. For example, one of the largest automakers, Toyota, said on February 10 that it does not expect to reduce its production rate because it has stockpiled four months' worth of chips to overcome the shortage. Toyota raised its full-year profit forecast by 54%. It remains to be seen how things will develop for the rest of the automakers, as well as other companies affected.
Source: cnbc.com
