A severe shortage in semiconductors – a vital part of the microchips found in cars, smartphones, PCs and more – is creating supply chain disruption that look set to plague manufacturing for at least the rest of 2021.
Semiconductors have become increasingly important in most electronics over the decades since their invention in the 1960s. Over the last decade, global demand growth has been as strong as ever, primarily as smartphones, tablets and other consumer electronics became must-have items. In more recent year too, semiconductors have become ever more important to new industries, including automotive where production has shifted towards increasing levels of electronic and electrical engineering, a trend set to continue as battery power and higher levels of automation come online.
Chipmaking has generally kept pace with demand over the last decade too, according to data from SEMI, although production is concentrated amongst a relatively small number of manufacturers. These include Taiwan Semiconductor and Samsung Electronics, which make the majority of the world’s supply between them. It’s an expensive game to play too – Taiwan Semiconductor plans a 63% increase in capital expenditure to $28bn in 2021, while Samsung to invest $116bn over the next decade to keep pace.
The impact of the Covid-19 provided the catalyst for the semiconductor shortage. As demand for PCs, laptops and other home office equipment and consumer electronics rose, semiconductor demand spiked and imbalances followed. Changes in demand in other sectors caused problems too, with automotive again a good example. Demand for vehicles has been stronger during and after the pandemic than many carmakers predicted meaning many are running low on semiconductor inventory. As relatively small buyers, automotive OEMs are also at the back of the queue for the supplies that are available.
The shortages have led to production closures. Ford cancelled shifts at two plants and faces a profit hit of up to $2.5bn this year as a result of the shortage and GM expects a similar $2bn decline in profitability. Nissan has reduced production in Mexico and in January 2021, while Fiat Chrysler, Honda and Volkswagen have variously reduced production or warned of the impact on production, particularly in North America.
Electronics manufacturers are feeling squeezed by the bottleneck too. Sony has cited the shortage as a likely reason why it will miss 2021 sales targets for its PS5 games console, with rival Xbox expecting challenges over supplies until at least the second half of the year. Apple, the world’s largest buyer of semiconductor with an annual spend of $58bn, suspended the launch of the iPhone 12 in 2020 by two months as a result of the bottleneck.
The bottleneck will not clear any time soon and the reality is that semiconductor supplies are very likely to remain constrained for the rest of 2021. With so much production concentrated between a handful of players – namely Taiwan Semiconductor and Samsung Electronics – it will take time for production to catch up with demand. One challenge here is that the major producers are both manufactures of their own semiconductors and chips, but also major suppliers to other ‘producers’ who only design chips, such as Apple, Nvidia and Qualcom. Some commercial realities in the market will determine recovery too – the global car industry spends around $37bn on semiconductors each year, some way below Apple’s spend alone and suggesting vehicle manufacturers may not be prioritised when it comes to allocating scarce volumes. Semiconductors, though, have long been a leading indicator for the health of the airfreight market – with demand for consumer electronics set to push production capacity higher over the course of 2020, it may be one market that sees the benefit.
Source: Transport Intelligence, March 30, 2021
Author: Nick Bailey